Category Archives: Environment

Fed Official Still Optimistic about Offshore Wind

Wind turbines off the Danish coast.

Wind turbines off the Danish coast.

by James A. Bacon

As the cost of offshore wind energy in Europe continues to decline, Abigail Ross Hopper, director of the federal Bureau of Ocean Energy Management, believes that offshore wind will come to the United States eventually.

Responding to a question by Dave Mayfield with the Virginian-Pilot what prospect she sees for ocean wind energy by 2050, she said:

I think there will be turbines running up and down the coast, the Eat Coast and the West Coast, and I don’t think it will be a big deal. Just like I’m looking out the window right now and there’s power lines along the side of the road that I ordinarily don’t see because I’m used to them.

Recently, the Dutch government auctioned rights for two large wind farms in the North Sea. The winning bid came in at the equivalent of about $95 per megawatt hour generated — $40 per megawatt hour below the previous low set by a Danish project just last year. That’s still higher than the cost of other energy sources, but the trend-line is moving in a positive direction.

The U.S. has a lot of catching up to do, Mayfield notes. Compared to the 500 wind turbines off the coast of tiny Denmark, there are five turbines off the East Coast of the U.S. — off Block Island, R.I.

Bacon’s bottom line: Europe is driving down costs now because national governments used massive subsidies to build a large and competitive wind industry, with all the supporting infrastructure and expertise required to install wind turbines in the open sea. That scale and expertise does not exist in the U.S. yet, and given the fact that offshore energy policy is driven mainly by uncoordinated state initiatives, there is no sign that it will develop any time soon.

If all East Coast states could coordinate their policies, they conceivably could generate a critical mass sufficient to entice European major players to set up shop in the U.S. For whatever reason, no one has undertaken the task of getting all the states working together.

Here in Virginia, Dominion Virginia Power investigated the cost of building two experimental turbines off the Virginia Beach Coast. That project would have tested, among other things, innovations designed to help the turbines stand up to hurricane-force winds, thus laying the groundwork for the large-scale deployment of offshore wind power. But the cost of the two experimental turbines was so high that the power company did not think it could get State Corporation Commission approval to build. Progress has stalled since the feds pulled a $40 million research grant.

Virginia has the most to gain of any U.S. state from building a vital offshore wind energy industry because Hampton Roads, centrally located along the East Coast and home to a large ship repair industry, is the most logical location for companies to operate. But the McAuliffe administration has done little — at least nothing visible — to build the interstate cooperation needed to achieve European-style economies of scale. Perhaps that’s because the McAuliffe team has chosen to focus on solar energy, for which the economics are considerably more favorable and the development lead times are much shorter. Given the string of recent solar project announcement, the administration arguably made the right decision.

Hecate Announces Solar Deal in Cape Charles

Transparency: outlook murky.

Transparency: outlook murky.

by James A. Bacon

Governor Terry McAuliffe has announced yet another utility-scale solar deal, this one a 20-megawatt project in Cape Charles in Northampton County. The “Cherrydale Project” will generate enough energy to power more than 3,000 households throughout the region, states the governor’s press release.

The project was assembled by a newcomer to the Virginia solar scene: Chicago-based Hecate Energy LLC.

“As a Virginia native with family ties to the Eastern Shore region, the 20-megawatt Cherrydale solar development has been an exciting and gratifying project with which to be involved,” said Preston Schultz, Hecate’s director of development. “We are grateful to Northampton County for their support throughout the development of the Cherrydale Project.”

A quick perusal of the Internet revealed that Hecate’s request for a special use permit ran into local opposition from residents who opposed the loss of 150 prime acres of farmland in land zoned for agricultural  use. On the positive side, according to the Cape Charles Mirror, the project is expected to generate $750,000 in real estate taxes over 35 years, while Hecate offered $200,000 in a “community improvement grant” for Northampton County to use as it wished.

The “permit by rule” issued by the Virginia Department of Environmental Quality contains provisions to ensure that the environment is protected at the Cape Charles site.

“In my opinion, the Commonwealth of Virginia Permit by Rule process strikes the right balance between protecting critical local environmental, cultural and historical resources while at the same time providing opportunities for the new clean energy economy to take root and flourish in the Old Dominion,” Schultz said in the press release.

The 185-acre facility will utilize an “innovative tracking system,” noted the press release, that maximizes energy output from the available sunlight. The facility will interconnect with the Old Dominion Electric Cooperative and A&N Electric Cooperative system.

Bacon’s bottom line: After a slow start, utility-scale solar is taking off in Virginia. As usual, however, the governor’s press release doesn’t provide the data that allows us to calculate the cost-per-kilowatt of the up-front capital investment, much less how the levelized cost (cost of construction, financing, operation and fuel over time) compares to other energy alternatives.

We don’t even know who Hecate will sell the electricity to. The fact that the solar plant will interconnect with two Eastern Shore electrical cooperatives does not tell us who will ultimately buy that electricity. Will it be sold into the PJM wholesale market? Has an Amazon Web Services-like buyer contracted to purchase the power? Will ratepayers of the local electrical co-ops purchase the power?

The deal may be great, it may be a dog. We don’t know, and if other solar deals are any indication, the terms and economics of this one will not be released to the public — although, I must be clear, I have not asked Hecate for details.

Speaking generally, not of this deal in particular, the lack of transparency invites suspicion. If the economics of Virginia’s solar deals were beneficial to ratepayers, one might reason, the players involved would be eager to share the news. The fact that the information is not shared suggests that they have something to hide. I hope my suspicions are unfounded. But the deal makers could dispel them easily by making more information available.

Want more Solar and Wind Power? Then You Need More Gas Backup.

transmission_lineby James A. Bacon

Elona Verdolini, Francesca Vona and David Popp are deeply concerned about climate change and the need to deploy more renewable energy sources. “Decoupling economic activities from fossil-fuel use (and hence, from anthropogenic carbon emissions) is the only way to avoid severe and pervasive impacts from climate change while sustaining economic growth,” they write in a paper just published by the National Bureau of Economic Research.

But they also acknowledge a reality typically missing from economic studies of renewable energy. Wind and solar are not “dispatchable,” that is, they do not generate electricity upon demand; they generate electricity when the wind is blowing and the sun is shining. “This translates into high system costs of renewable generation, as it requires holding significant back-up capacity to ensure a balanced energy supply throughout the day. In fact, these challenges will only further increase as the share of energy generation increases to levels never witnessed before.”

Unless cheap electricity storage options become widely available in the immediate future, “the penetration of renewable energy will increase system costs, as a significant amount of capital-intensive and under-utilized back-up capacity will have to be maintained,” write the authors, who hail from Italy, France and the United States respectively.

Delving into data for 26 Organization of Economic Cooperation and Development (OECD) countries between 1990 and 2013, the authors found that an 0.88% increase in renewable energy capacity is associated with a 1% increase in the share of fast-reacting fossil generation capacity.

“To date [fast-reacting fossil] technologies have enabled [Renewable Energy] diffusion by providing renewable and dispatchable back-up capacity to hedge against variability of supply.  Our paper calls attention to the fact that renewables and fast-reacting fossil technologies appear as highly complementary and that they should be jointly installed to meet the goals of cutting emissions and ensuring a stable supply.”

Bacon’s bottom line: This is essentially the argument that the utility industry has been making, although the implications for Virginia of this high-level conclusion drawn from 26 OECD countries, many of which are far farther along in the deployment of renewables than the United States, are not immediately apparent.

PJM Interconnection, the regional transmission organization that supports wholesale electricity markets for Virginia, has estimated that the electric grid can accommodate up to 30% renewables without threatening the integrity of the electric grid. The current level of wind and solar in Virginia is a tiny percentage of that level, and even Virginia’s voluntary Renewable Portfolio Standard for 2025  is only 15%. So, it’s not as if wind and solar are likely to create the reliability issues seen in countries that heavily committed to renewables.

But this is not an issue we can ignore in the Old Dominion. If solar penetration is merely 1% or 2% of Virginia’s electricity, the need for back-up capacity is de minimus; any needed power can be purchased from wholesale markets. But what happens if solar and wind reach 15%? There is a finite amount of electricity that can be purchased from outside Virginia because there is a finite amount of transmission capacity. At what level of solar/wind penetration would Dominion Virginia Power, Appalachian Power and the smaller electric utilities be required to maintain expensive backup capacity? I don’t know of anyone who has even asked that question.

The question goes to the heart of the debate over energy policy in Virginia in the era of the Clean Power Plan, which will accelerate the phase-out of coal-powered electricity production. Environmental groups have pushed not only for more wind and solar, but they oppose the construction of new gas-fired plants, new pipelines to supply them, and new nuclear units. Some even oppose extending the life of existing nuclear units. Again, that’s fine when solar/wind is a negligible component of electricity output, but it creates problems if renewables come to dominate the system. The NBER paper reminds us that we need to understand the tradeoffs better as we make decisions that we’ll live with for decades. Right now, I fear that we lack the information needed to make intelligent choices.

DEQ Approves Utility-Scale Solar Permit in Buckingham

solar_panelsby James A. Bacon

The Department of Environmental Quality (DEQ) has issued a permit for construction of a 19.8-megawatt, utility-scale solar project in Buckingham County, Governor Terry McAuliffe announced yesterday. Construction of the 200-acre facility is expected to begin early in 2017 and be finished by the end of the year. The cost is estimated to run between $30 million and $35 million.

DEQ Director David Paylor hinted that more solar projects are in the pipeline. “DEQ is looking forward to issuing more of these renewable energy permits in the future,” he said. “Our priority will be to take the steps necessary to protect Virginia’s environment while helping the Commonwealth become a leader in renewable energy production.”

The project is being developed by Firestone Solar LLC, a subsidiary of Virginia Solar, headed by Richmonder Matthew Meares.

“We are very pleased and thankful to Buckingham County and the Commonwealth of Virginia for supporting a 100 percent Virginia-owned and operated utility scale solar developer by approving our Firestone solar project’s state permit,” Meares said in the press release. “We hope this is the first of many such projects by Virginia Solar in the Commonwealth promoting Governor McAuliffe’s goals of helping the environment creating new economic drivers, utilizing Virginia products and services, and attracting business to the Commonwealth.”

Few other details were available about the project from the press release. However, the project has been in the works since at least August 2015. An article in the Farmville Herald indicated that the facility would include “ancillary support facilities and electrical interconnections … to be transmitted on a Dominion distribution line.”

The project could employ 150 workers during the construction phase, but full-time employment after construction would be minimal. Stated the Farmville Herald:

The project would have up to three employees every two months on-site for system inspections, vegetation management and preventative maintenance. … In addition, one employee may be on-site for security at any time, according to the application. There are not expected to be any permanent employees stationed at the site.

Bacon’s bottom line: So much for the miraculous green-energy job creation machine: a couple of low-skilled, part-time jobs. Solar may (or may not) be good energy policy, but promises that it will spur job creation are a cruel delusion. (Not that the alternative, gas-fired power plants, are a big job creator either on a jobs-per-kilowatt basis. But power plant jobs do require a high level of training and education, and they pay well.)

As always seems to be the case with solar projects, the economics of the Firestone deal remain a mystery. It’s not clear who will buy the solar power — whether Firestone will sell into the PJM Interconnection wholesale market or whether it has lined up a specific customer take the electricity, as in Amazon Web Services. Another possibility is that the developer will just flip the project to Dominion Virginia Power, as has happened with other projects in Virginia.

The up-front cost of about $1,625 per kilowatt is more than twice the cost of a state-of-the-art gas-fired plant, but it is considerably cheaper than the $2,250 per kilowatt for the recently announced Oceana Naval Air Station. (That may not be an apples-to-apples comparison, however, because the Ocean deal may have included infrastructure improvements not included in the Buckingham project.) If Virginia Solar is selling its power to a private customer, the cost is immaterial to the general public. But if the power will be passed on to Virginia rate payers, cost is very germane.

There is little information about the developer. Virginia Solar doesn’t even have a website. (The domain name is available for purchase.) Matthew Meares, the principal behind Virginia Solar, describes his specialty as “solar and wind financial structuring” on his LinkedIn page. That page also describes him as managing director of Richmond-based Sunworks NC, which has a one-page website. The company’s core competencies include financial modeling of various “tax equity and debt structures,” capital structuring, development assistance, technical due diligence, and energy production analysis.

There is a cottage industry of entrepreneurs who do the leg work of identifying prime solar sites, consolidating the land parcels, lining up the regulatory permits and then flipping the project to a player with deeper pockets. The ideal solar site is located near an existing electric transmission line that requires minimal investment to connect to the grid. It is in a rural area where NIMBYs won’t object to its presence and local governments will welcome the boost to the tax base. It also helps when negotiating the acquisition of land parcels to be a no-name firm rather than Dominion Virginia Power, Appalachian Power or any other company that cries out, “Deep pockets!”

Update: Reader Erik Curren pointed me to the website, which provides a bit more detail. Virginia Solar LLC was behind a 17-megawatt project in Powhatan County, projected to be installed in 2016. “Dominion Virginia Power intends to purchase this project and has submitted it to the Virginia State Corporation Commission for approval,” states the home page.

More on the Oceana Solar Plant: Expensive but No Cost to Virginia Rate Payers

More details dribbling in about the Oceana Naval Station solar power plant…

According to Dominion Virginia Power’s SCC filing, the project is expected to cost $39.6 million, excluding financing costs, or $2,252 per kW. That is roughly three times the up-front capital cost per kW of Dominion’s newest gas-fired power plant under construction in Greensville County. Of course, solar’s “fuel” is free, while the cost of natural gas is not. The truly relevant comparison would be the so-called “levelized” cost, including both capital and fuel, plus whatever value you attach to the reduction of carbon dioxide emissions.

Quoting from Dominion filings, State Corporation Commission spokesman Ken Schrad explains the unusual deal structure, which includes the Commonwealth of Virginia as an integral component:

Through the partnership arrangement, [Dominion] will construct, own and operate the Oceana Solar Facility. …. The electrical output of the facility will be solely dedicated to the Commonwealth, which the Commonwealth has agreed to purchase for a negotiated price for a term of 25 years. … The sale of the energy is occurring pursuant to an agreement entered into between Dominion Virginia Power and the Commonwealth. Under the agreement, the Commonwealth is able to benefit from the sale of the energy into PJM [Interconnection, a regional transmission organization], while also supporting the deployment of additional solar generation in Virginia. …

The consolation for Dominion rate payers is that they are not subsidizing the project. “There will be no impacts to the Virginia jurisdiction cost of service, base rates, fuel rates, or [Rate Adjustment Clauses] as a result of [Dominion’s] ownership and operation of the project during the 25-year term of the agreement,” writes Schrad.

This is a highly unusual deal structure. The McAuliffe administration probably deserves kudos for creativity, but I still have questions about the structuring, cost ad risk allocation of the deal. Alas, it just turned Margarita time in Emerald Isle, N.C., so I must demur.

Maybe readers can provide insight. For anyone interested in digging into the details, the case number is PUE-2016-00079. The documents have been filed but, as of this moment, not yet posted online.


More Information, Please, about Oceana’s New Solar Facility

solar_cloudsby James A. Bacon

The Department of the Navy  is collaborating with Dominion Virginia Power and the Commonwealth of Virginia to build a 21-megawatt solar energy facility at the Oceana Naval Air Station in Virginia Beach. The 100-acre facility, housing 179,0000 solar panels and scheduled for completion in late 2017, will supply enough electricity at peak production to power about 4,400 homes. Find the details here.

The project is good P.R. all around. Dominion, the Navy and the McAuliffe administration all get to bask in the glow of solar goodness. But the press release touches only glancingly on the economics of the project. Which makes me wonder…

The Navy was the driver, with Dominion and possibly the state (it’s not clear what the state’s role was) presumably stepping in to meet the Navy’s renewable energy mandates. Here’s what Secretary of the Navy Ray Mabus had to say about the benefits of the project:

We’ve achieved $90 million in nominal energy cost savings, $62 million in energy security hardware upgrades to bases, 170 megawatts of access to power during outages, and 22 million tons of CO2 abated. And we’re just getting started.

Just a few questions:

What are “nominal” energy savings? Are they different from actual energy savings?

Why would it be considered an “achievement” to negotiate access to 170 megawatts of power during energy outages — presumably from Dominion — when Oceana already has access to Dominion’s distribution network?

How much does the project cost? How much are taxpayers paying in order to achieve 22 million tons of CO2 cuts? Are there more cost-effective ways of reducing CO2 emissions?

What are the $62 million in “energy security hardware upgrades,” and how do they factor into the calculation of benefits?

I’m on beach vacation this week, so I’m not in a position to answer those questions right now. But the fact that the press release does not mention the project cost much less the cost-per-kilowatt — information routinely released for any electrical generation project — I cannot avoid the suspicion that the Navy considered those numbers to be an embarrassment. I would think that taxpayers — including anyone whose priority is lower CO2 emissions — would want full transparency to ensure that the federal government is spending its money cost effectively.

Update: More information from Todd Flowers with Dominion…. Secretary Mabus’s remarks were referring to the Navy’s “global efforts and accomplishments. and were not meant to represent solely the Oceana project. The Navy’s benefit from Oceana will be in the form of electrical infrastructure upgrades (a new electrical feed) in exchange for our use of their land.

Solar Technology Advances, Solar Policy Backtracks

by James A. Bacon

Joshua Choi, a University of Virginia chemical engineer, is part of a research team that has discovered a new class of materials, metal halide perovskites, that can be sprayed onto a substrate where they crystallize into a thin film that captures energy in a solar cell. There are many hurdles to come before the discovery can be commercialized, but according to Science Daily, the materials offers the potential of dramatically lowering the cost of solar energy.

Of all forms of energy production, solar is on a productivity curve most closely resembling to a Moore’s Law, which described the process of in which microchips doubled their processing power every year or two. As scientists devise more efficient ways to convert sunlight into electricity — and Choi’s innovation is only one of many — the cost of solar power seems destined to head lower.

One would think that the prospects for solar power look better than ever. But the electricity source is experiencing a backlash in the very states and countries that moved most aggressively to adopt it, according to the New York Times.

Spain, Great Britain and Germany all are scaling back their regulatory support for solar energy. Meanwhile, in the U.S., utilities and regulators in California, Hawaii, Nevada and Arizona have backed off their generous backing of solar, and the Times says other states may follow their example.

While the cost of solar is getting cheaper, solar panels aren’t producing when the demand is greatest. Solar production peaks during mid-day, but the peak demand for electricity — from air-conditioning in the late afternoon, and home appliances when people get home from work — occurs a few hours later. The discrepancy does not create a problem when solar generates electricity on a small scale; it is a problem when solar and other intermittent power sources comprise a majority of power production.

“The challenge,” suggests the Times article, “is to design a new kind of rate system — one that accurately values electricity that can now flow in different directions and at different volumes at different times of day. It can also, depending on the location and level of demand, either increase or relieve strain on the grid.”

Bacon’s bottom line: Solar and wind are coming. PJM Interconnection, the regional transmission organization of which Virginia electric utilities are a part, estimates that it can accommodate up to 30% renewable electricity without risking service interruptions. (An advantage of a regional organization is that sharing electricity over a broad geographic area smooths out the local spikes in solar and wind generation.) Virginia is far from achieving that level of renewables penetration, so the challenges experienced by other states and countries are not likely to crop up here anytime soon.

One could argue that Virginia’s regulatory go-slow approach to renewables has saved the Old Dominion from the confusion and disruption that prompted the early adopters to backtrack. Some solar advocates seem to live in a la-la land disconnected from such realities. But one could likewise argue that we need to start thinking about a regulatory framework that accommodates more wind and solar, or others will figure it out long before we do, leaving Virginia at a competitive disadvantage. I don’t see that discussion occurring right now. We need to begin.