Saturday, October 4, 2014

Systemic Economic challenges of the Energiewende, and poor mainstream media understanding in Canada

The Boston Consultancy Group has a report on Germany's electricity experiment that is terrific; it is long and challenging, but should quickly become a reference work on the economic issues attached with Germany's Energiewende.
Meanwhile, the Canadian media, and wind lobby, display an infantile understanding of the impact of trendy electricity policies in misinforming people - while engineers at Sask Power achieved an important first with carbon capture and storage.

First, accentuating the positive, the article to bookmark and return to often is Germany’s Energiewende: The End of Power Market Liberalization?
In 2010, Germany’s government defined a bold vision for the country’s energy future, one heavily reliant on renewable-energy sources, distributed generation, and energy efficiency...
Fast-forward to today: Where does Germany stand in realizing its plan? Has progress met expectations? Does the country’s commitment to the plan remain strong? What are the implications of the ongoing energy transition (in German, Energiewende) for German society and industry, and especially for the country’s power sector? What are the implications for Europe’s power sector?
This report seeks to answer these and related questions by assembling an objective fact base. One of the report’s key findings: Germany’s efforts may indeed transform the country’s energy profile as intended. But they will also likely lead to the end of power market liberalization in Germany and, very possibly, elsewhere in Europe.
Anyone with an interest in energy economics should read Germany’s Energiewende: The End of Power Market Liberalization?

The report concludes with "Implications for Power Market Liberalization":
What can one conclude from a fact-based assessment of Germany’s current situation? Several things. First, the country’s liberalized, energy-only power market, at least in its current form, is incapable of meeting Germany’s energy-policy objectives. It sends price signals that are grossly inadequate to spur sufficient investment in new capacity of either renewable or conventional generation. It thus does not ensure security of supply or provide sufficient financial returns for all market participants. This makes the market’s design particularly problematic from the perspective of both policy makers, who need to manage the public’s expectation that electricity is a public good, and investors, who are looking for appropriately risk-adjusted returns.
Second, continued re-regulation of the power market, both to achieve the integration of renewables and to ensure sufficient capacity of conventional generation, is inevitable. In fact, regulation (or re-regulation) now represents a significant share of the power market. In 1993, only about 4 percent of Germany’s installed capacity (consisting entirely of renewables) was regulated; by 2012, fully half of the country’s installed capacity (renewable and nuclear capacity) was regulated. (See Exhibit 11.) The trend will likely continue, especially given that more and more conventional capacity is being kept alive through grid reserve regulation.
In Canada, the focus on expanding industrial wind seems to be swinging to Alberta, although they are still swinging in Toronto too.

AESO 2013 Annual Market Statistics
CBC news somewhat foolishly headlined an article built on a Lazard's report, Solar, wind cost-competitive for peak energy, study finds:
As a source of peak energy — that is, power at times when there is the greatest demand on the electrical grid — photovoltaics are more flexible and cost-competitive than conventional technologies, Bilicic said
Bilicic apparently isn't from around here, where Ontario returned to a winter peak in 2014 (early evenings), and Alberta always has had a winter peak - which I assume is also early evening. Solar is completely useless for those winter peaks, but certainly useful for summer peaks, and Bilicic has a point on solar for summer peaking jurisdictions.

Wind is demonstrably not reliable for summer peaks in Ontario, or Alberta. So it isn't so much that it is not "cost-competitive for peak energy", as that it's not eligible for the competition.

I've highlighted (sloppily) three parameters of Lazard's accounting in this chart from their reporting:

This type of chart is one reason why one needs to read both quality reporting - like the article I first referenced here - and fine print. Levelized Cost of Energy (LCOE) is not particularly relevant if the calculation does,"not take into account potential social and environmental externalities ... or reliability-related considerations." And if you aren't taking externalities of coal, you wouldn't start with "supercritical pulverized coal"and move the range to "90% carbon capture and compression."

The CBC was not the worst offender in communicating electricity economics poorly - while, at least not that article. Tom Adams reported on some "Metro Morning with Matt Galloway" segments, one with business rcommentator Michael Hlinka. I can forgive Hlinka's mistakes on units,  but Germans arent' paying four times what Torontonians are, and "conservation" is a very poor term for efficiency - and a good term for exposing people who aren't much interested in analysing the topic thoroughly.

The worst television report on Canadian wind energy came from the Business News Network.

Energy Watch: Alberta ‘wasting’ wind power opportunity - BNN News:
ANALYSIS: In Alberta, the winds of progress towards more renewable energy are still when they should be gale force.
The province is actually a Canadian wind energy pioneer, having been home to Canada’s first commercial wind farm at Cowley Ridge since 1993. However, with absolutely zero incentives in place to encourage the multimillion-dollar investments needed for more turbines to bag the Alberta breeze, even home-grown wind power builders may soon start to lose interest.
AESO 2013 Annual Market Statistics
The video segment accompanying the article has Jameson Berkow omitting important facts and delivering some howler non-facts.
  • He could mention Ontario has bailed on its feed-in tariff program (for projects with a nameplate capacity over 500 kilowatts)
  • He mentions coal plants coming off-line in Alberta and says renewables could replace those plants, when they cannot. Wind and solar can displace fuel as fossil fuel plants run less, but not the fossil fuel plants themselves
  • He mentions the decline in planned projects, but doesn't note the declining value of wind generation as capacity grows. The Alberta Electric System Operator (AESO) reported an average 2009 market revenue for wind generators of $42.81/MWh, which was 88% of the market average $47.81. Four years later, for 2013, the numbers reported were higher, but wind's $54.97 was only 68% of the market average, $80.19. For an explanation of that trend, see The diminishing value, and increasing costs, of wind and solar generation in Ontario
  • "The C-Train in Calgary... it's actually entirely powered by wind power, interestingly enough. That's a fun fact people don't realize" - sane people recognize the claim as an unpleasant delusion.Either that train doesn't run when it's not windy, which production during peak hours indicated includes when it is very cold and when it's very warm, or - and I suspect this is the fun fact - it runs on grid power.
For an opposite view of Alberta and renewables, from that promoted by the CBC and BNN, see Kenneth Green's The bank accounts of Albertans will take a big hit if premier follows Ontario’s renewables push.
Alberta has a lot of fuel consumption on its grid that can be displaced (unlike Ontario), and has achieved good pricing on existing wind capacity, so I doubt they'll compete for a foolishness crown with Ontario.

We all wish Alberta well in reducing it's carbon footprint, but the value of that renewable generation is only the value of the fuel it displaces - it cannot displace capacity. This is why carbon capture and storage is considered an important technology for the future, and in this field Canada saw a great accomplishment from Sask Power this week.

World’s First Full-Scale ‘Clean’ Coal Plant Opens in Canada | National Geographic
...Duncan Kenyon, program director for Unconventional Oil and Gas at the Canadian energy think tank Pembina Institute, said that on balance it was money well spent.
“Aggressive development of renewable energy sources and a commitment to energy efficiency are vital components to addressing climate change,” Kenyon said. “But there are so many assets and such a vast infrastructure invested in fossil fuels, the short- and medium-term reality is that we need carbon capture. So, yes, this is a big achievement, an important step forward.”
Proposed regulations by the U.S. Environmental Protection Agency could make CCS a practical necessity for coal’s survival as an energy source in the United States, but Kenyon said Boundary Dam’s importance could extend beyond North America by sending a message to the world’s most prolific coal user, China, that carbon capture for power plants has arrived.
I quoted that section because it was really refreshing to see a positive approach to the plant from Duncan Kenyon - hasn't happened often from Pembina.

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