Disclaimer

Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Sunday, September 4, 2016

More on electricity costs

The go-to people for electricity costings are Lazard, one of the premier investment banks in the world.  They have been publishing their annual "Levelized Cost of Energy Comparison" for 9 years.  They do this for their clients, but after 9 months, as a public service they make these estimates available on their website.

Here is a screenshot of their latest chart (November 2015), with three of my additions (click on chart to see a larger more readable version)


The magenta dot shows the latest PV auction results for Dubai ($29.9/MWh) and Chile ($29.1/MWh).  Two things to note with this. Just 18 months ago ago, a similar bid produced a price of  $59.8/MWh in Dubai.  Lazard's own estimate for 2017 solar LCOE (the grey diamond to the right of the magenta circle) was $46/MWh (Please note that I had to move the circle a little to the left so as not to obscure the '$46')  Of course both Chile and Dubai are in places with higher solar radiance, as the chart below shows.  But the critical point is that costs have HALVED over the last 18 months in these places: the solar radiance on the other hand hasn't changed.  My guess would be that the places on the map with light green solar radiance would have solar which would cost twice that of places like the Atacama Desert and Dubai.  And that's still cheaper than coal and about the same as gas (gas in the US is much cheaper than gas elsewhere)

(Source)


The green dot in the "Solar Thermal Tower with Storage" (i.e., Concentrated Solar Power or CSP) represents the planned CSP plant in Dubai at "under 8 cents per kWh".   Because it can store heat in the form of molten salts, CSP can deliver power 24/7: better, it can deliver power on demand so that when demand on the grid is high or supply low it can act as a peaking power plant.   The cost of the first large-scale CSP plant at Crescent Dunes in Nevada was $135/MWh.   This is in the middle of the band of $119 to $181 given by Lazard.  The South African CSP plant is costed at around $120/MWh, Chile is estimated to be below $100/MWh.  The Dubai CSP plant will produce electricity at below $80/MWh.  Note that the stored molten salt "can remain hot for months".  Heat loss from the stored molten salts is just 1 F per day.  Wow.

The green circle to the right of Lazard's gas-peaking estimates represents my guesses at the LCOE of the Tesla Powerpack.

To sum up:

  • After energy saving, wind is the cheapest
  • Industrial scale solar is next, and the costs there have fallen precipitously over the last 12 to 18 months
  • CSP has fallen 40% in costs over the last couple of years
  • Batteries are now nearly competitive with gas peaking power, and anyway batteries have several advantages over peaking power gas
  • Gas combined cycle is now less competitive than it was just 2 years ago.
We keep on coming back to the same conclusion: there are no technological or economic constraints to achieving 100% renewables electricity generation.  True, the sun shines less at high latitudes, but the wind blows more.  So let's take a "typical" grid.  It would be 1/3 solar PV, 1/3 wind and 1/3 CSP, ignoring for the moment hydro, existing nuclear, etc.  That would cost in the US (leaving out the tax credits for solar and wind) .33*$50 (wind) + .33*$40 (solar) +.33*$140 (CSP) = $77/MWh,  a little bit more than  existing electricity price to industry in the US ($70) .   And I haven't chosen the cheapest costs but the midpoint between the (new) lowest and the highest in Lazard's costings above.  And it also ignores batteries, which are already being used as a cheaper alternative to grid upgrades and as a direct replacement for poles and wires, but is now also being used as a spinning reserve.  Moreover, these costs are falling every year, inexorably.  Renewables are already highly competitive with fossil fuels.  And they will just go on getting cheaper.

Saturday, August 27, 2016

Tesla Powerpack

Tesla has published the cost of its Powerpack batteries (screenshot  below)


So, what is their LCOE (levelised cost of electricity).  Well that depends on how much you can discharge them each time.  This very interesting blog post discusses battery packs and longevity.  It's a long post but well worth reading.  In essence, you do not want to completely discharge or completely charge a lithium-ion battery because battery life is shortened dramatically if you do.  You also don't want it to get too cold or too hot.  The Tesla car battery system has  coolers and heaters to extend battery life so it seems logical that the Powerpack has them too.  (This article suggests that battery degradation in Teslas is remarkably low, even after 150,000 miles)

So let's assume a 60% DoD (depth of discharge) for the Powerpacks with software controls that prevent it going above 85% and below say 20% except in an emergency (with manual overrides).  This would allow far more cycles.  Note that at the end of 10 years, the battery should still have 80% of it original capacity, but I haven't included that in the costings as new batteries are likely to be much cheaper then--old batteries even with 80% of original capacity will be competing against new batteries which will cost 20% of what batteries cost now.  On the other hand, they'll still be usable.

Let's say 10 years, or 3650 cycles, DoD 60%.  That gives a LCOE of around $230 per MWh.  Now according to Lazard's analysis (see next blog post) electricity generated by peaking power gas costs $163 to $218 per MWh.  So in other words, batteries (at least, Tesla's) now cost just a little bit more than the top end of gas peaking.

But batteries have several advantages over gas peaking:


  1. Batteries are 100% green.  Tesla's gigafactory will be 100% powered by solar, and Tesla will be recycling the batteries when they get old.
  2. The response time to fluctuations in the grid is within micro-seconds with batteries, but it can take several minutes for a gas peaking plant to get going.
  3. The cost of batteries is known.  Once installed, there is some minor maintenance but the fuel costs are zero.  A gas plant has to pay for its gas, which fluctuates in price.  Price certainty is always valuable and to be preferred ceteris paribus to price fluctuations.
  4. Batteries are modular, and have a surprisingly small footprint.  So they can be placed next to the generation plant (e.g. a wind or solar farm) or at a substation.  They can be spread across the grid, reducing the need for grid upgrades as demand rises.
  5. Gas peaking power is useful when demand is "too high" but batteries are useful when demand is both "too low" and "too high".  When the wind is strong at night but demand is low, or when in midsummer solar produces "too much" power because baseload power plants can't be switched off, so that the wholesale price plunges or even goes negative, batteries can store that power for when demand is "too high".
Battery costs have fallen 70% over the last 18 months.  Before the last 18 months, battery costs were falling by 15% per annum.  So, let's be conservative and assume costs go back to a 15% per annum rate of decline.  That means that in a year's time, electricity from Tesla's Powerwall will cost $195 per MWh.  In two years' time, it'll be down to $165 per MWh--the same as the cheapest gas peaking.  In three years, $140 per MWh.  Let's do a back-of-envelope costing of a grid powered by solar and wind at $40 per MWh in 3 years' time (costs falling by 10 to 15% per annum), with 8 hours of battery storage.  That gives us $40 plus 1/3 of $140, or $87/MWh, not much more expensive than the cheapest coal, even excluding carbon taxes.

Does that mean we can go to 100% renewables without other solutions?  No, not quite, though we could easily go to 70%.   Batteries will cope with daily demand fluctuations but not seasonal ones.  Power to gas (the Sabatier process) might be part of the solution, in which case we may keep our peaking power gas plants.  On the other hand we may not: it's much more efficient to produce hydrogen by electrolysis and burn it later when needed that to produce hydrogen and then add the next step of producing methane.  Hydro is another: Australia's Snowy River Hydro system for example will most likely end up producing most of its power in winter, to provide for winter electricity demand in SE Australia, not spread it across the year as it does now.   CSP (concentrated solar power) yet another.

One last point.  The introduction of batteries into the grid will put coal and nuclear at a disadvantage.  Not only is the average cost of wind and solar cheap, the marginal cost of wind, solar and batteries is virtually zero. On the other hand, because coal and nuclear can't easily be scaled up or down, and because there is fuel cost involved, their marginal costs are not zero.  So any grid operator/utility at the margin will favour wind and solar if it has battery storage.  This will increase the costs of baseload generators like coal and nuclear because their costs will have to spread over fewer hours and smaller capacity.  You can see this already happening in China.  Batteries will force the grid towards renewables, because renewables are cheaper and preferring them will make baseload power even more expensive.  And that process is starting now.

Monday, August 1, 2016

Cost of Different Electricity Sources

Lazard has been producing this chart for a couple of years now.  Over the last few years, the cost of renewables (shown in the top half of the graphic) has fallen steadily (i.e., moved to the left).  Cleantechnica has added the dotted lines and the coloured arrows to Lazard's original chart.

Click on the chart to enlarge it to a more readable size
(Source)

Wind and solar are clearly the cheapest.  In fact, the most recent contract signed in Dubai is at just 3 cents per kWh ($30 per MWh), as marked by the dashed yellow line.  Dubai is in the desert, latitude 25 degrees, and it has lots of sun. Solar in Australia, the US south-west, Africa, India wouldn't be much more expensive than this.  The cost of solar in northern Europe on the other hand would be higher, but the cost of wind would be lower.

Note also how cheap CSP (concentrated solar power with storage) is.  Dubai has just announced the world's largest and cheapest CSP project, which will deliver power 24/7 for under 8 cents per kWh or $80 per MWh, way below the $119 in the chart.  The only fossil fuel generating process cheaper than that is Gas Combined Cycle.

In addition, the assumption in the costings is for an 8% interest rate.  In the case of solar (PV), CSP and wind there is no fuel cost--virtually all the cost is the upfront cost of capital.  Which means that at a lower interest rate the costs of these technologies would be lower.  Governments right now can borrow at 2%, which would slash the cost of renewables.  I'd be interested to know by how much.

The picture of the structure of the grid is clear: utilities will preference wind and PV to the maximum extent practicable, which for large scale grids (as opposed to smaller areas within and well connected to larger grids) is 50% and  maybe as high as 70%

This will be complemented by gas-fired generation.  Right now burning gas adds to atmospheric CO2.  Michael Liebreich, head and founder of BNEF, talked about power to gas in his keynote presentation to the BNEF annual conference in April.  Audi calls it e-gas. Water is split by electrolysis into hydrogen and oxygen; the hydrogen is passed over a catalyst in a stream of carbon dioxide producing methane, indistinguishable from its natural counterpart. The source of the CO2 stream can be the byproduct of a biomass plant or .... the escape vents of a gas-fired power station, producing in effect a closed system.  (Extracting CO2 from the atmosphere is feasible but expensive.)  And most developed countries have an existing natural gas grid with extensive storage.

This kind of mix is exactly what the US is installing now.   Cheap solar, cheap wind, and gas to fill the gaps.  And potentially, the gas can be produced from surplus wind and solar.  I haven't mentioned batteries, or extending the grid, both of which are additional options to allow higher percentages of renewables in the total.

Only inertia, ignorance and the bizarre opposition of the Right is stopping us from rapidly switching to 100% renewable electricity generation.





Monday, July 25, 2016

Germany reaches 36% renewables

Germany has reached 36.4% renewables (including hydro) in total electricity generation, four years ahead of schedule.  The target for 2025 is 40-45%.  Germany is the world's 5th largest economy.


Read more here