This is the Green New Deal Economy. Enjoy.

Source: Energy Information Agency.  Click for larger view. LCOE, LACE and Value-Cost Ratio explained below.

By Steve Haner

If all else fails in achieving your green energy dreams, you can always hope for a depression.

In Italy, the COVID-19 depression has already dropped electricity demand by about 18-21%, as reported recently by Utility Dive. The regional transmission organizations around the United States are seeing declines, as well, and I’ve been told (no data, but a reliable source) that PJM’s load is approaching a 10% drop.  Past recessions have included electricity usage declines. 

“We don’t have a complete picture yet of what the impacts are, but we can tell you that the shift in work patterns and business closures is likely behind subtle shifts in electricity use,” PJM spokesman Jeff Shields (told Utility Dive) in an email.

PJM’s highest electricity use is now coming in a little later in the morning, and the grid operator expects electricity use to “drop to some degree if schools and businesses continue to stay shuttered because of the coronavirus. Electricity use will more closely resemble weekend days.”

Virginia, of course, is part of the PJM Interconnect, so that drop in seasonal electricity demand includes us. Will the demand reduction over the next few months achieve even long term goals set the Regional Greenhouse Gas Initiative, every potential goal set by the Transportation and Climate Initiative, and all the demand drops envisioned in the recently passed Virginia Clean Economy Act?

So, are you liking the economy that goes along with that?  This is indeed what it looks like. The people at headquarters for Britain’s Extinction Rebellion movement are denying authorship, but somebody is plastering up signs in its name claiming humans are the disease and Corona is the cure.

In fairness, the drop in demand will reverse (all rational people hope) when the economy ramps back up, but perhaps not all at once, and perhaps not without resistance. The financial crisis which has wiped out so much wealth will linger beyond that point, something already noted by the renewable energy developers hot to start building in Virginia. This was a topic this morning for Virginia Mercury, worried that the promises of the omnibus clean energy package won’t be financed now.

It was a banner moment for environmentalists. Among the promises they secured were state commitments to build out 24 gigawatts of solar, wind and energy storage by 2035 — almost 40 percent more than the existing capacity of the fossil fuel units owned by the state’s largest utility, Dominion Energy — and annual targets that would bind the utilities to progressively including more and more renewables in their energy portfolios.

“Almost 40 percent more than the existing capacity…” That’s the key fact that keeps getting overlooked. The 2020 legislation should have been called the Clean Energy We Don’t Actually Need Act. There is not a single scenario, even in Dominion Energy Virginia’s dreams, where that capacity is needed in Virginia or in PJM over the next 25 years. The bill left in place all the new natural gas plants and two large coal plants owned by Dominion.

There is nothing in the new law that allows the State Corporation Commission to hold up a single project on that basis, need. The SCC most certainly cannot say no to the $8 billion offshore wind project which will really cost us ratepayers more like $14 billion over time. That’s $14 billion for energy (1) we don’t need, (2) that could be obtained for a far better price if we did, (3) from a project that fails every measure for rational capital use.

If the new workforce mandates I wrote about earlier this week are bricks on the life raft for Virginia’s economic recovery, this turkey of a bill is a pallet of cinder blocks.

The U.S. Energy Information Agency is viewed as fairly detached from the ideological wars around carbon emissions. It looks at various electricity generation modes and scores them on economics, the levelized cost of energy (LCOE) being the best know metric. Offshore wind has a lousy score on that, given the high capital cost and the 40% or so capacity factor, in that some days the wind just doesn’t blow. The most recent EIA analysis I found put a capacity-weighted LCOE on offshore wind at $115 per megawatt hour.

EIA uses another interesting measure, the leveled cost of avoided energy (LACE.) LACE accounts for the differences in the grid services each technology is providing and recognizes that intermittent resources, such as wind or solar, have substantially different duty cycles than the baseload, intermediate, and peaking duty cycles of conventional generators,” EIA writes.

If a project produces intermittent power, but otherwise has a low cost of energy, then it still makes sense to build it. If it has bad scores on both, it’s a bad use of capital. EIA calls that the value-cost ratio, and if that falls below one, don’t do it.  No existing technology has a lower value-cost ratio than offshore wind, 0.32 on the EIA chart. Solar now has an excellent score, 1.11. Onshore wind, hydro power and geothermal also do well.

That chart above is based on projects entering service in 2025 and here is another one projecting scores for projects out to 2040. Offshore wind looks only a bit better.

So how did the General Assembly order us to spend $14 billion in our capital over the next decade or so? Simply the worst capital decision in the history of the Commonwealth, unless campaign contributions and political brownie points are entered in the equation.

The good news is that if solar developers are going to be struggling for capital for projects with good value-cost scores, with little risk, finding investors or lenders for that offshore wind ziggurat will be doubly difficult. At some point, people will realize that most of the money, despite promises to hire local for the short-term construction work, will go to European countries. Their economic depression could exceed ours in length and depth. That’s why the national Democrats are going to pull out all the stops to add new financial sweeteners for their favorite donors. Perhaps another column.

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23 responses to “This is the Green New Deal Economy. Enjoy.

  1. Some more:

    ” ISO New England, which oversees New England’s electrical grid, reported on Friday that demand for electricity has dropped 3 to 5% over the average for periods with similar weather to what we’ve been having:

    In addition to overall declines in consumer demand, these societal changes are also affecting demand patterns across the region. Our forecasters are seeing load patterns that resemble those of snow days, when schools are closed and many are home during the day. These patterns include a slower than normal ramp of usage in the morning, and increased energy use in the afternoon. Though the pandemic is affecting energy usage, weather conditions remain the primary drivers of system demand.”

  2. What seems clear from the EIA data is that future Virginia energy sources should be solar and natural gas. (It doesn’t address the retrofitting of aged nuclear power plants.) Wind may be well suited for the Great Plains states, but it just doesn’t make sense in Virginia — certainly not on a large scale.

    The LACE concept is interesting — avoided cost for avoided electricity. We definitely need to consider energy efficiency. But that’s a grab-bag of different initiatives. Some undoubtedly make economic sense, while others do not. My inclination is to let the market decided which ones are most effective given our climate and electric rates here in Virginia. I realize that doesn’t satisfy environmentalists who believe we should factor in impossible-to-quantify externalities such greenhouse gas emissions.

    It will be interesting to see how the public responds to all this when reeling from job losses — some 47,000 this past week in Virginia alone.

  3. “The good news is that if solar developers are going to be struggling for capital for projects with good value-cost scores, with little risk, finding investors or lenders for that offshore wind ziggurat will be doubly difficult.”

    Given that the full cost of this project will be recovered from customers in a rate adjustment clause, I would think banks would be lining up to lend Dominion what money it needs above its retained excess earnings…..

  4. I always learn something from these posts of yours. Granted, I didn’t follow the big bill closely, but this is the first time that I realized that it mandates building out green energy to a capacity that is 40 percent higher than existing capacity. What were these people thinking? I can understand their enthusiasm for renewable energy, but why at greater capacity than is projected that we will need? Bill Murray and his cohorts must have had a hard time keeping a straight fact during those negotiations.

    I had the same thought as Rowinguy, why wouldn’t investors be willing to put up the money for the offshore projects if Dominion is guaranteed a profit?

  5. The problem is that the government makes very poor economic decisions. These morons in the General Assembly don’t know squat about energy use and technology. How can they expect to be able to forecast demand? I bet half of them would flunk basic macro- and micro-economics. What’s even more scary is the typical legislator is at least five times as smart as the media. Too bad the virus cannot sense and hook-on to the stupid gene.

  6. There’s a bit of a disconnect on wind potential. I’ve never been on the bay-bridge tunnel when it wasn’t blowing like hell.

    And we’re getting estimates of huge potential but the up front capital costs are said to be a killer. Nukes capital costs were/are a killer too, no?

    Yes, true, the wind does not blow all the time but out on the bay or Eastern shore and Nukes do. Might be interesting to compare the two levelized costs.

    At any rate, we keep getting differing narratives here and I suspect, we’re never going to know for sure until we build a few and actually do it.

    And if we treat this like a modern era CCC project, heckfire it’s golden!

    • Just study the tables. Many more in the full report. Nukes don’t score that well, either. Funny how you’re all for hard evidence until it goes against you.

      • Wrongo. There just are all kinds of data all over the map from opponents and proponents. I see that. Do you?

        If we can harness the wind for less than gas – even with the intermittent aspect, we ought to pursue it. Fitting it in to the grid is worth it. If wind is the worst cost of all the sources, then bag it. But let’s get facts and evidence together first, it’s not a “conspiracy” that other government are building offshore wind…

  7. $14 billion is about the cost of a new nuke. Just saying for morr perspective

  8. IF small modular reactors became viable (at about a billion each) – it could change the game.

    The other advantage of SMRs is that they are moderateable which means they can ramp up and down in response to demand and in response to other generation that varies like wind/solar.

    looking for levelized cost comparisons between conventional nukes and offshore runs into different numbers.

    Google: ” The Economic Thicket of Generating Cost Comparisons”

    and just FYI – The average price for offshore oil-drilling rigs is approximately $650 million – each – AND they do last for decades – because they are built to withstand the harsh ocean environment to start with.

    Fossil fuels and probably conventional nukes are going away. They should NOT go away UNTIL we have viable less polluting replacements.

    We should not damage our current grid in a quest for “green” but at the same time, the naysayers are wrong – we ARE going to change – the only doubt is the timetable and it may be sooner than later.

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  10. Steve, you raise some good points when you question the SCC’s ability to say no to a project that could reach $14 billion in cost, but I wish you would call for another do-over of regulations that incent building excess and expensive capacity with increased profits, and over estimate future projections in order to validate more building.

    Those regs are also an issue when you say “The 2020 legislation should have been called the Clean Energy We Don’t Actually Need Act.”… when it “left in place all the new natural gas plants and two large coal plants owned by Dominion” … You could say the legislation effectively closes those CO2 and methane emitting plants, when it reduces the allowable emissions rate in the electricity sector to net zero by 2040.

    How to judge projected costs? …. LCOE is historically based and does not account for any industry that is developing and where costs are being reduced dramatically. With LACE the EIA is making a stab at a more comprehensive calculation but … there are others.

    Berkeley Lab created a comparison for the value of offshore wind on the East Coast. They focus on ‘value’, and show that the historical value of offshore wind exceeds that of onshore wind. Their conclusion is due in part to locational differences across the 3 study areas, PJM, New England and NY, but it highlights the fact that offshore sites are close to the end users and in some cases to places where demand is sometimes constricted.

    There are also some differences in hourly output profiles up the coast, but the timing of offshore wind allows it to substitute for peaking units. ‘Peakers’ are the most expensive generators because they require daily starts and stops but only run for a short time. In contrast, the offshore breeze picks and when solar output is declining and electricity demand is peaking. Studies in NY and from the University of DE demonstrate the synergy of solar and offshore wind for filling summer peak demand.

    Finally, the Berkeley Lab study explores “multiple ways to enhance the value proposition for offshore wind. One is the addition of electrical storage, another, interconnecting to higher-priced locations, like selling Virginia’s plentiful offshore wind into NY? Just selling the RECS can add value.

    Jim … “Letting the market decide” … Those offloaded costs are not really “impossible to quantify”. The 2011 Harvard Epstein study for the true cost of coal electricity estimates “that the life cycle effects of coal and the waste stream generated …. conservatively doubles to triples the price of electricity from coal per kWh.” The study focuses of Appalachia and actually includes the toxic issues of coal ash ponds as an offloaded cost. Why have we let the damage happen without costing, and even given tax write offs to coal and oil to the tune of $22billion annually?

    Right now, the highest value for offshore wind is in New England with their high electricity prices, followed by NY. in 2017 Maryland paid $132/MWh REC prices for 386 megawatts (MW) of offshore wind capacity down from over $250/MWh paid for Rhode Island’s 30 MW Block Island offshore wind farm, which came online only 1 year earlier. Market changes are happening fast … Capacity factors are moving above 40%. Hywind Scotland has a median output of 59.1%. AWEA estimates the offshore wind industry will invest between $28-$57 billion in the U.S. economy and support 45,000-83,000 jobs by 2030. And best of all…no pipeline needed, and no worry about gas prices heading up after this glut or gas availability from diminishing fracking sites..

    • A link to the Berkeley report would be welcome, if available.

      • For some reason, Jane was not able to post a comment yesterday. Here is what she tried to post:

        It is useful enough that I may look at it for a longer discussion. I suspect when you plug in the construction cost of the Dominion project the way it will be financed, it will support my case more hers. But it seems a balanced examination. Thanks, Jane.

        • This is good. Thanks for posting it…

          on the idea that it would have been a lot less expensive had it been bid and done via PPP – probably no question.

          But in some respects – the project itself and who builds it and for how much are two separate thing.

          Dominion takes the view that they have a govt-granted monopoly to build any/all things necessary to accomplish their mission AND to make a profit on it – whether it’s coal ash cleanup or a new gas plant or solar panels or offshore wind.

          The green folks are really after two things – to build more wind/solar AND to shed at least some of Dominion’s role as a sole monopoly provider.

          The fact that Dominion has been able to super-charge the profit part with the help of the GA is a 3rd additional issue.

          The Berkeley report will no doubt add more to the longer-running discussion of the economics of offshore. I posted something yesterday that basically shows that he supposedly cut and dried calculation of LCOE is anything but and that in some circles – dispatchable versus non-dispatchable is not as well understood in terms of other changes that have to be made to accommodate non-dispatchable generation.

          OTOH – externalities such as mountain-top removal and coal ash cleanup – fracking and pipeline have not been included in LCOE for fossil fuel generation – either.

          Getting to apples to apples is not so easy and there are players on both side of the fence more than happy to show you their “calculations”.

          • I have no ideological objections to OSW. I was a small part of the team at the shipyard working on the (dropped) Gamesa demonstration turbine. It was gonna be cool. My concerns are all about 1) the capital financial structure, 2) piling all the risk on one utility’s ratepayers, and 3) making rational decisions not driven by donations and ideology. (Because I also have no ideological objections to natural gas, which is what separates me from Jane, TomH, you, etc.)

  11. re: ” Because I also have no ideological objections to natural gas, which is what separates me from Jane, TomH, you, etc.)”

    methinks you may have a reading comprehension issue.

    I have said from the get go – that gas is not optional and in fact, is mandatory if you want to use solar and wind because gas is the only generation that can ramp up and down complementary to varying solar/wind.

    Until something else “happens” – there is no alternative to using gas, however, the more wind/solar you have the less gas you have to burn and I support that.

    I also am NOT opposed to the pipeline per se – what I am opposed to is the use of eminent domain for a for-profit venture that has been falsely promoted as a public “need” for electricity. Dominion has a much as admitted this is not true.

    So – “ideological” to me is classifying all opponents the same way instead of recognizing that there are more than two dimensions to the issue. Cannot and should not automatically classify all as either “green” or “not green”.

    We need to move away from fossil fuels – as quickly as we can – but not to unproven or unworkable alternatives that essentially break the grid.

    that position is not “green” and not opposed to gas – and I say not ideological.

  12. Steve … Larry is right …not ideological choice and yes we will need gas for awhile. Larry thinks longer than I believe because I want us to go heavy on efficient buildings and onsite solar and storage.

    BUT my objection is scientific.

    • friendly amendment – I’ll go as short as Jane if we actually can and do the things that reduce consumption but I tend to be pragmatic about what changes people will make, especially high dollar ones without any incentives, etc.

      And yes. – the folks who typically find themselves on the opposite side from “green” – they do tend to see it in more black and white terms and that anyone who is on the “green” side is as “extreme” as the extreme.. there is no range so that someone can “lean” green – if they “lean” green, they are “extreme” green!

      I get pigeonholed that way all that time here and Jane knows – that there “extreme green” to her left and I am to her right on green – but to some we’re all the same. I actually have little patience with extreme green because I think they give ammunition to the green skeptics to tar all green as extreme.

  13. One more small comment … the very smart people who took me in and with whom I served in my CT. town were both Republicans and Democrats, maybe even more Repubicans than Dems. The town was a national leader in conservation regulations, as was CT. The idea of ‘no regulation’ came in the 80’s with Reagan and I think grew with the increase in corporate power as companies consolidated and trade became global.

    Everyone has to obey speed limits and stop signs and drive on the right side of the road with a car that has operable brakes and such. Certainly there are good and bad regulations and they should always be updated as times change, but there is no basis for the strict left/right divide we now have other than campaign funds.

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