When federal regulators decided earlier this week to avoid subsidizing uneconomic power plants that could in theory run all day, it may have helped propel another trend — the development of energy storage devices that can give renewable energy an added lift.
As has been well documented, coal generation is losing ground not just to cheaper and cleaner natural gas-fired units but also to wind and solar energies that have been responsible for about 60% of all of generation. Utilities, which are duty bound to serve their customers in the most cost-effective and reliable manner they can, are thus looking for energy forms their patrons can afford and want — and that will keep the lights on.
“Numerous key markets have reached an inflection point where renewables will have become the cheapest form of new power generation by 2020, a dynamic we see spreading to nearly every country we cover,” says Stephen Byrd, an analyst with Morgan Stanley, on his company’s website. Solar panel prices have fallen 30% in the last year and will be 20% less this year. The country is on track to meet its obligations under the Paris accord, the firm said, even if the United States remains on the sidelines.
With that, a major story broke this week: Xcel Energy, which had proposed in August 2017 to shut down two of its coal plants in Colorado, had simultaneously said it would replace those with green power and natural gas — at no additional cost to its customers. To that end, it has asked for bids on for such projects that could help bolster its would-be wind and solar projects.
So what happened? It said it received 430 proposals, which compares to 55 it had gotten in 2013. But the headliner here is that the median price for the 75 solar deals it received came in at $29.50 per megawatt-hour, which is less than ever before. Meanwhile, the median price for 42 wind projects was $18.10 cents a megawatt/hour — again, a record-setter.
Even better: when energy storage devices are included, the prices doesn’t jump much: $21 per megawatt hour for wind plus storage and $36 a megawatt hour for solar plus storage. Xcel said that the prices do not reflect the cost of connecting to the grid. The utility aims to surpass Colorado’s 30% renewable energy standard by 2020.
In an ideal world, energy storage devices would soak up electricity at night when the cost of power is cheaper and then release it during the day if the wind is not blowing or the sun is not shining. In the real world, the technology is used to keep the electrical grid balanced and to prevent changes in frequency that can cause the lights to flicker out and potentially prompt rolling blackouts. In other words, the devices — often batteries — detect an imbalance and immediately respond.
No doubt, energy storage could add tremendous value in electricity markets. Still, the cost of such technology has limited its deployment. If a project is going to add up to $1 billion, utility executives want to see proof that the investment can be recouped and how that cost will be shared. Longer term and as the technology matures, the business opportunities will abound.
Prices are dropping because such companies as Tesla Inc. are investing $5 billion into a battery storage manufacturing facility while the states are also involved. California, for example, is mandating investments in energy devices, which should create economies of scale. To that end, it is requiring its incumbent utilities to provide 1,325 megawatts of energy storage capacity by 2020. Edison International, PG&E Corp. and Sempra Energy are participating.
Tesla joined forces with Edison’s Southern California Edison last year to utilize Tesla’s Powerpack on the grid. The goal is to avoid momentary electricity outages, which increases reliability. Such efficiencies mean that there will be more room on the wires for green electrons.
“Utilities with deregulated power plants, which must compete to sell power, generally will experience greater upside if they are leaders in renewable energy development, and additional downside if they own large fleets of fossil and nuclear power plants in competitive markets with cheap renewable energy,” says Morgan Stanley’s Byrd.
That’s already happening. The Sierra Club reports that 250 coal-fired power plants have either closed or have announced they will retire. Meantime, Moody’s Investor Service said that the price of wind power has fallen so far and fast that it could replace coal-fired power plants in the Midwest.
“Wind power economics are driving coal generation up the dispatch curve and into earlier retirement,” says Jairo Chung, a Moody’s analyst.
It all has resonance is a world that is moving away from technologically inferior power plants that are dirtier and toward more advanced energy technologies that are cleaner. That’s something that federal energy regulators recognized when they rejected the Trump administration’s plan to prop up older coal-fired plants. And it is now being underscored by the success of Xcel Energy’s bidding process, which shows that wind and solar will continue to grow at competitive prices.
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