Archive for the ‘Electric Utilities & Solar’ Category

Right After Coal, Is Natural Gas Flaming Out?

Great piece here from Danny Kennedy with compelling observations. The pace of disruption from renewable energy (ex: wind+storage $21 MWh) and the low carbon imperative, first coal and potentially now gas, is exactly why the incumbent fossil fuel and associated industries may need to start acting sooner than later and thread the needle from legacy business models to new low carbon products and services.

– – – – – – – – – – – – – – – – – – – –

Originally published on Greenbiz: The End of Natural Gas?

Amidst the madness of 2017, a bigger shift was missed than probably any other — right at the commanding heights of the economy: Natural gas fizzled out of the plan for the future.

That’s major.

Natural gas is no longer a contender or pretender, just a relic of the past, likely to fall as far and as fast as Old King Coal, and maybe faster. This has repercussions for the economy of many states and nations, and the politics of the transition in terms of what we ask for and what we will get.

Here’s what I’m thinking:

The big signal that got some coverage in the pink pages (FT) and energy-wonk trade press in November was the closure of Siemens and GE’s gas turbine-making capacities. Just to recap for those that missed it, first Siemens, the giant European champion of the electric power revolution, laid off 7,000 workers. It reported that it had a capacity to make 400 100MW gas turbines annually but only had received orders for 110 in 2017. Ouch. Retrain!

And then GE: Two weeks later, it laid off 20,000 workers in its gas-related business, including turbine-making teams around the world. Remember, just about five years ago Siemens and GE battled for the gas business of Alstom, the French descendent of the same companies GE came out of in the early 20th century. GE paid $10 billion for it and declared a coup.

But now, they’re writing it off. Their strategic choices under Jeff Immelt are being questioned by the market: while the Dow is up about 30 percent over the past 12 months, GE’s stock is down about 45 percent. (Indeed, GE won the “honor” of being the Dow Jones Industrials worst-performing stock of 2017.)

If we can build large-scale storage that can do all the functions of a fast-ramping gas turbine in less than six months for less money, there will be no market for gas turbines peaking services.

What’s significant is the timing of these announcements. Is it a coincidence that they happened as South Australia was turning on a 100-megawatt battery that had been built in just 100 days by Tesla and a consortium? If the reality is that we can build large-scale storage that can do all the functions of a fast-ramping gas turbine at, say, 100MW scale, and we can build it in less than six months (gas peakers would take six years) for less money, then I think there will be no market for gas turbines to provide peaking services.

It’s pretty binary. And I think Siemens and GE know it.

That is not to say they will not sell any turbines. Or that someone else won’t try (although I am not sure who). The point is, the world’s best companies at making gas turbines are starting to get out of that business. And what Tesla and friends did in South Australia is about to become commonplace. Storage is cheap enough to build at these scales, and the more it is built the cheaper it will become. No wonder Siemens is working with Gamesa on making hot-rock storage as a competitive technology — so it doesn’t get completely left behind by batteries.

But that’s not all.

Heavy blows

A few other heavy blows were dealt to natural gas over the past few months. In November, the Norwegian Sovereign Wealth Fund, derived from hydrocarbon riches and one of the world’s largest pools of capital, proposed to stop investing in oil and gas. In December, the World Bank announced it also will swear off financing of upstream oil and gas projects, albeit not until 2019. That means key money taps for the industry are closing. Norway’s are the kind of trillions you need to develop new gas fields, and the World Bank’s catalytic billion-scale capacity is oft needed to get such flows going. Alas, they will be no longer.

But what about customers?

Here in California, we’ve had some pretty strong signals from key buyers in the world’s sixth-largest economy that it wants to get off natural gas. Stanford University — an innovation economy bellwether — swore off its gas contracts in an effort to electrify everything and experiment in climate solutions at scale. The city around it, Palo Alto, then decided to wean its public utility and people off gas. It can get solar power for less money and is rebating citizens to swap out gas heaters and stoves with electric appliances. A sign of things to come.

Probably more important is the California Public Utilities Commission and the California Energy Commission — the two agencies pretty much designing and approving the state’s energy assets — saying they no longer need natural gas in their toolkit. (The California ISO agrees.) This came in the context of hearings around a particularly offensive gas peaker plant called Puente in Southern California — especially after the politically disastrous Aliso Canyon gas leak of 2015-16 and the deadly San Bruno gas explosion before that, in 2010.

It is a consensus that must send shivers up the spine of long-term gas sellers. Aside from being a big market for gas (even since the gas guys screwed the state with the energy crisis of 2000-01), California is often a driver of things to come. When it comes to energy, as goes California, so goes the nation and often the world. When California claimed it basically would get off coal 20 years ago, it was poo-pooed and parodied. It has taken until this year to get completely off the black-rock power supply fully — but, lo and behold, the rest of the world is pretty much following suit.A fully renewable energy supply and the electrification of everything is the emerging plan in California, wherein electric vehicles are a distributed asset and thermal power is dying.

And it will with natural gas. A fully renewable energy supply and the electrification of everything is the emerging plan in California, wherein electric vehicles are a distributed asset and thermal power is dying.

Of course, many will read this and doubt or decry it. And by no means am I saying it is definitive. There are some contraindications. More gas pipeline projects kicked off in the fracking fields of America this year than this screed would suggest. But those were likely committed to in 2015 or before. I’d imagine that investors today are worried about them becoming stranded assets. I think the evidence around fracking-well depletion rates and leakage rates has become clear: Natural gas is not a climate solution.

A bridge fuel to nowhere.

Beginning of the end

When we know what we know about flaring and lifecycle global warming potential, I think it is intellectually dishonest to keep pretending gas is better than oil or coal. It is not. But what this turn of the market — the reality that it is no longer essential in the electricity grids of California and beyond, and that no one is buying it when they can buy storage of electricity itself for less — allows, is for us to abandon the bridge-fuel nonsense.

For now, simply know this: 2017 was the beginning of the end for gas.

A little over two years ago, David Hochschild, a California Energy Commissioner, and I published an op-ed in the San Francisco Chronicle declaring “the end of coal is near.” At the time, the article was the subject of some vitriol and ridicule but it largely has been borne out.

Of course, we were not alone (nor am I now) on willing the end of the natural gas industry. But I think it’s important to reflect that in 2017, for all its other problems in the clean-energy industry and our nation more broadly, the gas industry became, if not dead, at least a dead man walking.

Share this:

Where Wind Farms Meet Coal County . . . . . Jobs Are Crucial But At What Cost?

As Upton Sinclair wrote, “’It is difficult to get a man to understand something, when his salary depends on his not understanding it.” When your livelihood depends on fossil fuel, the political, economic and environmental externalities often hold no interest. This well written and informative piece from the New York Times about competing energy types in Wyoming’s Converse County illustrates vividly this point and the energy sector job conundrum.

Health costs and fatalities caused by coal burning power plants are a seldom-identified externality in the energy jobs discussion. While coal jobs are crucial to the families in the article, nowhere is there any mention about families downwind from coal plants who experience appalling health problems.  Long term studies from the EPA and other peer- reviewed papers show that coal burning kills 15,000 people per year in the U.S. while the coal industry employs only 55,000. Not an acceptable ratio. The cost to treat illnesses from coal burning in the US exceeds 10% of our total health care costs of $3 trillion per year and equals up to 6% of GDP.

Do we need a peer reviewed energy ratio model that can be cited by journalists which states X number of energy job types creates X number of deaths and healthcare costs?

Share this:

How ISOs and RTOs can create a more nimble, robust bulk electricity system and accelerate renewable energy.

Its no secret that the limiting factor for renewable energy growth is the lack of robust and coordinated transmission and the tools to control intermittency. This ISO/RTO Council report is probably the best update on the subject available. A great read and well worth time.

From the executive summary:

“. . . . specifically, the task force seeks to identify where technological deployment intersects with operational and policy considerations. This report is the culmination of that effort.

Source: ISO.RTO Council

In the course of developing this report, three key priorities emerged as imperatives to continuously ensure the reliability and efficiency of the

Bulk Electric System as the penetration of emerging technologies continue to expand. Those identified priorities are as follows:

1. Renewable supply and integration: Many breakthroughs are being made in individual technologies such as renewable generation, grid-scale energy storage and microgrids, for example. However, is there enough innovative activity happening cohesively to integrate all of these disparate components into the overall electricity system?

2. Greater situational awareness: Several technological options are presenting themselves, but are they being exploited to their maximum potential and will they be enough to maintain adequate awareness over a changing system?

3. Controlling an increasingly distributed electricity system: As Distributed Energy Resources (DER)3 increasingly connect to the distribution system, their aggregate impact on the bulk electricity system4 is already evident. To what extent should operation of DERs be ‘controlled’ or influenced by the bulk system operator and what should that relationship look like? What technologies will best assist that framework.”

As this report demonstrates, we have the technology and the knowledge to speed this clean energy transition but we need the political will. It’s time for leadership at all levels to embrace what it is the greatest economic and environmental opportunity of our lifetime.

Share this:

Deutsche Bank expects final ‘gold rush’ in the US solar market to begin in 2017

But that prediction is less than certain as a result of the negatives and positives of the 5 year ITC extension.

Article originally posted on PV Tech 

Deutsche Bank said it estimated around 8GW of primarily utility-scale projects were under various stages of development in Texas alone, while nationwide that figure stood at around 31GW, which would translate into a relatively flat 2017 market with 2016 but generate strong growth over the next three years. Image: SunPower

Deutsche Bank said it estimated around 8GW of primarily utility-scale projects were under various stages of development in Texas alone, while nationwide that figure stood at around 31GW, which would translate into a relatively flat 2017 market with 2016 but generate strong growth over the next three years. Image: SunPower

Author:  Mark Osborne

Updated: According to the latest analysis by Deutsche Bank and in contrast to market research firms, Bloomberg New Energy Finance (BNEF) and GTM Research the US solar market is expected to grow in 2017, heralding in the last ‘gold rush’ period through 2020.

Deutsche Bank analyst, Vishal Shah said in a research note that PV module and inverter price declines would drive improved solar economics in 2017 and result in continued strong demand seen in the US market in 2016.

Shah noted: “This precipitous decline in module prices is also accompanied by a sharp decline in inverter prices, especially in the utility-scale and C&I [Commercial & Industrial] markets. As a result, we expect solar economics in several U.S. markets to improve significantly over the next 12-18 months. Our analysis suggests that project returns in the U.S. could likely exceed the returns solar developers achieved in other markets during prior cycle peaks and these returns are unlikely to improve as incentives gradually decline or net metering phases out. As such, we expect the final “gold rush” in the U.S. market to begin in 2017.

However, BNEF has recently cited the US ITC extension as “hurting” solar growth in 2017, due to the urgency to complete projects ahead of future ITC cuts is several years away. According to BNEF, overall US solar demand in 2017 is set to experience its first major slowdown after years of strong growth. BNEF also expects the US residential solar market to stay steady at around 2.8GW in 2017, a 0.3% increase over 2016 forecasts.

GTM Research had been the first firm to warn of a slowdown in the US market in 2017, citing utility-scale project slowdowns after the ITC extension at the end of 2016. The market research firm expected the overall US solar market to decline from around 14GW in 2016 to levels of around 7 to 8GW last seen in 2015.

Update: However, GTM Research has since told PV Tech that it latest forecast was closer to a flat year in 2017, compared to a dramatic drop. The research firm is guiding installs at 13.7GW in 2017, down slightly from 13.9GW in 2017.

A major decline in US installations is expected to occur in 2018, yet rebound to around 15GW in 2019 and over 17GW in 2020.

Deutsche Bank said it estimated around 8GW of primarily utility-scale projects were under various stages of development in Texas alone, while nationwide that figure stood at around 31GW, which would translate into a relatively flat 2017 market with 2016 but generate strong growth over the next three years.

“For 2018-20, we expect strong growth in all segments, and raise demand estimates from 13.2GW, 15.2GW and 17.4GW to 16.5GW, 18GW and 19.7GW respectively,” noted Shah.

Deutsche Bank’s forecast would seem to be the more bullish, currently.

PV module price declines steeper than expected

Only a month ago, Deutsche Bank’s Shah noted that industry participants at the SPI 2016 exhibition in Las Vegas expected average PV module prices to approach US$0.35c/W within the next 6-9 month timeframe, down from US$0.60c/W at the end of Q2, 2016.

However, Shah said in the latest report that US module prices had already declined by nearly a third in the Q3 to US$0.40c/W and were set to decline further to US$0.35c/W in the fourth quarter of 2016.

Share this:

Poll: More than three-quarters of Americans say next president should speed up adoption of renewable energy

Originally posted on, the author of this piece.

As Americans count down to Election Day, more than three-quarters (78 percent) believe the winner of the presidential race should prioritize the faster adoption of renewable energy, according to the seventh annual “Sense & Sustainability” study released on September 13th, 2016 by G&S Business Communications (G&S, New York).

NREL Insolation Map - June

Solar Energy Applicability Nationwide

According to the poll, more than 4 in 5 Americans (85 percent) believe customers benefit from having alternatives to conventional power utilities, such as distributed energy resources that include rooftop solar and wind.

In addition, more than three-quarters (77 percent) say government regulators should develop a pricing model that ensures utility companies pay for excess power supplied to the grid by smaller scale, independently owned device operators.

Despite strong public sentiment favoring the next president’s focus on renewables, the G&S study found that American opinion is practically split when it comes to elected leaders and their understanding of the costs associated with fossil fuels.

More than half (52 percent) disagree, as compared to 48 percent who agree, that elected officials are well informed about fossil energy’s total costs, among them the effects of air pollution on healthcare and the impact of climate change on property insurance.

Americans believe the advantages of market competition may go beyond cost savings. More than two-thirds (68 percent) feel it is more important to have a resilient power grid than to enjoy lower electricity costs.

“Even the contentious nature of this year’s presidential campaign could not distract Americans from recognizing the importance of renewable energy to future economic growth and their own personal well-being,” said Ron Loch, G&S managing director and sustainability consulting leader.

“It’s clear that public interest is served when there are discussions about the broader financial impact of fossil energy and the need to improve both energy efficiency and the infrastructure investment required to build a resilient power grid.”

 Americans claim priority of renewables

One of the key finding from the study is that Americans voice strong support for raising the priority of renewables on the White House agenda: More than three-quarters of Americans (78 percent) believe the next president should dedicate more attention to speeding up renewable energy adoption.

Among issues ranked most influential on accelerating use of renewable energy, cost savings from energy efficiency was cited most often (26 percent), followed by energy security (23 percent) and cost to taxpayers for government incentives (19 percent).

The G&S Sense & Sustainability Study was conducted online by Harris Poll in August 2016 among 2,007 U.S. adults.

To obtain a summary of the G&S Sense & Sustainability® Study, please visit the company’s website.

Share this:

Diversification – New Realities Facing Fossil Fuel Based Energy

solar, renewable energy diversification

Source: U.S. DOE

In my previous Diversification Chronicles post I covered some of the high level reasons why the time is right for fossil fuel and electric utilities to pursue profitable diversification into the renewable energy industry. Below, I outline recent events and news that further highlights the legal, regulatory and market drivers that should create urgent diversification strategy development or expansion for companies with large CO2 and GHG negative externalities as a result of their business operations.

On August 9th, the federal 7th U.S. Circuit Court of Appeals ruled for the first time on the legality of the Obama administration’s estimated social cost of carbon (SCC). SCC was determined by federal agencies who worked together starting in 2008 to create an accurate SCC, a metric that represents the long-term economic damage to society, in U.S. dollars, from each incremental ton of carbon dioxide released into the atmosphere. The latest estimate placed the SCC at $36 per metric ton of CO2.

The recent ruling upheld the Department of Energy’s use of the SCC metric in its analysis of standards for commercial refrigeration equipment.  DOE used them for issuance of 2 rules in 2014: one of the rules set energy efficiency standards for 49 classes of commercial refrigeration equipment, while the other stipulated test procedures for the standards.

The refrigeration industry challenged DOE’s use of the social cost of carbon, but DOE’s use of the SCC metric, “was neither arbitrary nor capricious” according to senior federal judge Kenneth Ripple, who was appointed to the bench by President Reagan. The ruling was definitive in its entirety.

While this ruling only applies to the refrigeration industry in Indiana, Illinois and Wisconsin, the implications are enormous for the oil & gas and electric utilities. The SCC metric as established by the US government is now a benchmark going forward. This may well be the first domino falling which would affect all CO2 & GHG emitters in near term.  

For the first time ever, CO2 emissions from coal-fired power plants will drop below those from natural gas in 2016, according to a new analysis from the federal Energy Information Agency. Renewable energy, energy efficiency, historically low prices for natural gas, and other factors have driven coal use down by >30% while natural gas has been replacing that fuel for generation.

It was always assumed that natural gas would be a solid 50-year bridge fuel combined with renewables, energy storage and other technologies. But with its rapid rise in use, less energy density, and methane issues, natural gas is becoming a larger CO2 & GHG contributor with projections putting it past coal emissions in its heyday.

In addition to overproduction, very low oil prices, and legal challenges surrounding potential prior knowledge of the impact of their industry on climate change, the oil & gas industries are facing a potentially game changing problem of how Wall Street will value each company’s fossil fuel reserves.

Typically, an oil & gas company’s stock market valuation is weighed heavily on proven reserves and ability to extract. With many countries looking at putting a price on CO2 and limiting extraction of oil & gas as a result of the COP 21 Paris Agreement, this becomes a crucial data point for both the investment community and the operating companies themselves.

Industry observers believe that it’s only a matter of a few years before the investment community significantly reduces the value of oil & gas companies and limits their equity positions. Additionally, the Securities and Exchange Commission is coming under pressure to change its rules to require energy firms to be more clear on what their material climate change risks are.

Combined with climate change symptoms seemingly accelerating over the last few years, these market and regulatory challenges make diversification into renewables an imperative.  Short-term and weak green-washing strategies of the past will not stand up to public or government scrutiny going forward. The time is now for government and corporations to lead the transition to renewable and clean energy.

Share this:

Solar+Storage: Capturing Opportunities and Overcoming Challenges


solar energy & energy storageThe solar + energy storage model is widely cited and somewhat hyped beyond the reality of where pricing and business models stand today.

This archived webinar from my friend Terry Schuyler and his colleagues at DNV GL provides a clear picture of the challenges and the coming opportunities as the storage technologies decrease in cost and increase in performance.

Click here for webinar access. 

Share this:

Diversification Into Renewable Energy Chronicles – How About Now?

solar energy, diversification, solar bankability

Source: U.S. DOE

First post in a series looking at the fossil fuel segment diversification into renewable energy.

Consider the current energy industry situation:

  • For the first time in the last 100 years of the electric utility industry, revenue from sales of electrons did not go up after the US economy emerged from the recent great recession. Energy efficiency, renewable energy and behind-the-meter generation schemes are part of the reason.
  • Oil and gas industry revenue and margins are suffering from very low prices as a result of overproduction, regulatory tightening on negative externalities and other factors.

    Coal Industry Decline

    Coal Industry Decline

  • The coal industry is at a point that prompted the CEO of one the largest coal producers to state publicly that coal as a dominant generation fuel is in significant decline. Natural gas at historically low prices is rapidly replacing coal for base load generation. Coal is also impacted by strict limits on emissions as a result of the EPA’s Mercury and Air Toxics Standards(MATS). International markets, long thought to be a lucrative export valve for US coal, are in decline.  China and other large coal burning nations have enacted new laws to wind down their coal generation, as the reality of climate change sets in and the cost-competitiveness of renewable energy continues to rise.
  • The future energy picture, broadly speaking, is generally viewed through an electric industry lens. “Electricity is the energy of the 21st century,” according to Patrick Pouyanné, CEO of the large French oil company Total, which has been making initial strategic investments in renewable energy and energy storage over the last six years.
  • The majority of the world’s countries (174) have come to agreement on slowing down climate change at the United Nations COP21 in December 2015, which attempts to limit warming to 2° C compared to pre-industrial levels. With energy generation contributing average of 35% of emissions, the implications for the energy sector is clear.

In this era of market turmoil and low prices across all fossil fuel energy sectors, renewables are highly cost-competitive AND gaining ground. The recent BNEF 2016 Outlook verifies what renewable energy cheerleaders have been saying for many years – renewables with energy storage and next-generation grid technology are ready to lead the imperative global transition away from carbon-intensive generation.

So why is the fossil fuel industry still sitting on the sidelines? Renewable energy companies and assets throughout the supply chain are relatively inexpensive now, due to the low cost of the gas and oil it competes against. The timing to present a diversification effort to shareholders has never been better.  The timeline for return on investment for renewable diversification is significantly shorter than building fossil fuel assets. This would appear to be a first-mover’s diversification market.

The renewable energy industry represents a natural, highly profitable diversification strategy given the fossil fuel industry’s large balance sheets, synergistic services and capabilities, very low cost of capital, leverage with regulatory agencies and built-in customers in many cases. Yet many fossil fuel companies continue to dig in deeper on their traditional extraction-and-burn model, even as a Deloitte survey of oil and gas executives back in

Constellation Energy PV System at Denver Airport Source: Denver International Airport)

Constellation Energy PV system at Denver Airport     Source: Denver Int’l Airport

2009 uncovered major concerns about the sustainability of their industry.  The majority of these executives also expressed strong support for, and confidence in, the future of renewable energy.

There are signs that a tentative transition by some entities is underway. Major electric utilities such as Duke Energy, Georgia Power, NRG Energy and Exelon domestically have their toe in the renewable energy water, and the large European utilities Enel and E.ON  have announced long term transitions to 100% renewable energy. Other smaller electric utilities are testing renewable generation, and decoupling their profitability from electron-only sales into energy efficiency and other services. The oil & gas sector is increasing their involvement in renewables with recent announcements from Shell, Total, and Statoil, as well as a number of smaller firms that service the large multinationals.

However, with the exception of Total and few others in the electric utility industry, diversification capital investment budgets are small, generally under 0.6% of the total. And there is always the lingering suspicion, based on past pronouncements, that these latest diversification efforts are merely green-washing to counter urgent climate change action calls.

To be sure, diversification from a core competency is not simple for any company who has shareholders to satisfy on a quarterly basis.  Patience for executing a diversification strategy is not something the investment community is good at, as witnessed by the removal of electric utility visionary David Crane from the electric utility NRG last year. And E.ON in Germany is an example of the difficulty in maintaining profitability while crossing the diversification chasm.

But with the continual and rapid lowering of the installed cost and levelized cost of energy, as well as plunging cost reductions in the energy storage sector, diversification into solar and wind and other renewables can be achieved with a well timed diversification plan and lower risk. There’s money to be made, jobs to be created and the urgent health of our planet to consider.  How about now?

Share this:

The Golden Age of Natural Gas Cancelled?

bnefIt’s fitting for me to return to blogging right after the release of the Bloomberg New Energy Finance Outlook 2016 report. While I have always been an optimist that solar energy and renewables generally would eventually disrupt the centralized fossil fuel paradigm, this report exceeds even my optimistic thinking.

What is astounding about this report is that as solar and wind continue their steep cost declines to the point that even with coal and natural gas generation costs at historic lows, renewables are, and will continue to be, the preferred choice for new generation through 2040. In fact, the report states that zero emissions renewables will be over 60% of all new electricity generation by 2040, requiring $7.8 trillion investment (coal & gas will require $2.1 trillion). Natural gas has always been assumed to be a long term “bridge fuel” until renewables, storage and intelligent grid infrastructure could mature but that maturation is happening significantly faster than most analysts thought.

In addition, capacity factors are forecast to go through the roof for renewables as better technology, supply forecasting and

60% Zero Emission Generation by 2040

60% Zero Emission Generation by 2040

smart grid technology enable large jumps in capacity gains. This makes renewables much more desirable. Once the generation asset construction is completed, the marginal cost of the electricity it produces is essentially zero, while coal and gas have ongoing cost-variable fuel requirements for every watt produced. The choice is clear for the power utilities, IPP’s and commercial and industrial customers like Amazon, Apple and others even before factoring in the environmental benefits.

The report also forecasts Energy Storage becoming ubiquitous by 2040, with total behind-the-meter energy storage to rise dramatically from around 400MWh today to nearly 760GWh in 2040, representing a $250b market. PV+ storage, in the near and future terms, will be come the norm, not the exception.

On a more sobering note, coal use in India other countries will still be expanding, which in turn means that the world will exceed the Intergovernmental Panel on Climate Change’s ‘safe’ limit of 450 parts per million and the 2⁰C scenario agreed upon at COP 21 in 2015. While China (long demonized as the mega coal offender) is on a massive and rapid transition from coal to renewables, India has a long way to go. As a result, in addition to the $7.8 trillion capital investment for renewables through 2040, another $5.3 trillion investment in zero-carbon power by 2040 is required to prevent CO2 in the atmosphere rising above the COP 21 goal.

Share this:

Lazard 2014 LCOE Research Report

Lazard Ltd. puts out their annual Levelized Cost of Energy (LCOE) Analysis in Q4 every year, and I always greet it as a worthy piece of market research. Others, however, shower it with critique – some dubious, some accurate. (2014 post on this research here) While there are significant variables that affect the effort to quantify LCOE in one metric, this annual research is quite accurate and appropriately footnoted regarding these variables.

LCOE is defined as all the expense line items of a PV system’s installed cost + the total lifetime cost of the PV system divided by the total amount of energy output in kW hours that the system will put out over its lifetime. (A simple LCOE calculator here).

Lazard LCOE Chart from 2014 Research

Lazard LCOE Chart from 2014 Research

The latest Lazard research reveals what others including Deutche Bank, UBS, NREL and other analysts have been saying over the past year: utility-scale solar and wind power are increasingly cost-competitive on the wholesale level with traditional energy sources such as coal and nuclear, even in the absence of subsidies. At the retail level cost comparison, its widely competitive unsubsidized with highly subsidized traditional fossil fuel generated power.

The research also shows the all-important progress of energy storage cost reduction and the large benefits of coupling storage with PV to reduce the demand charges and/or provide instant grid frequency stabilization. (A great list of all the energy storage benefits can be found here.) 

As a long-term participant in the utility and solar energy industries, it’s breathtaking to see the progress of the PV industry and its market penetration in the last 3 years. The industry has continually had to compete with highly subsidized fossil fuel generation while consistently improving LCOE through hardware, process and regulatory efforts to name a few. Significantly, all of this market penetration progress was achieved with 10X less in government subsidies than traditional fossil fuel-based industries. And with current cost reduction roadmaps throughout the supply chain showing continual lowering of cost’s, the future looks bright.

Share this:

Electric Utility Extincton or Evolution?

For the first time in its 100-year history, the electric utility industry in the US did not have an uptick in electron sales exiting a recession. This is due to a number of factors including the strong emphasis on energy efficiency programs over the last 10 years, growth in distributed generation behind the utility meter, demographic shifts with movement to warmer climates and an economic downward reset after the large bubble burst which led to the great recession.

Solar Energy, utility Meter

A direct connection to the customer

Combined with growth in renewable energy and independent power producers (IPP), this lack of growth has caused extensive discussionand consternation about the future of the electric utilities and their ongoing viability as going concerns in the energy industry and on Wall Street.

Recent discourse centers on the rise of residential PV due to the well-documented reduction in cost of PV systems over the last 6 years. PV deployed on homes now competes with retail priced energy from the electric utilities, which is now at cost parity in many locations.  With the emerging development of PV combined with energy storage using batteries, the conversation is about a utility death spiral that goes like this: as more and more homes deploy solar with batteries, the electric utility loses more and more revenue which requires them to raise rates which then encourages more adoption of residential PV by home owners.

While there is no question that the electric utility industry is going through a large and painful transition to a new and yet to be defined business model as a result of the aforementioned issues, it would seem highly unlikely the electric utility business model would go away completely as many pundits would suggest, for the following reasons:

1)   They possess a regulatory-granted monopoly which evolved to serve a nationwide public need for robust and reliable electric service;

2)   They have low cost of capital in an industry that requires large capital expenditures;

3)   They operate at unprecedented scale with corresponding efficiencies;

4)   They own and operate the grid infrastructure.

Solar energy, utility monopoly

Monopoly with significant barriers to entry.

There is no question that the utility industry has historically been slow to react or plan for the current disruptions in the energy industry. They also have a dismal record when entering new markets and seeming unwilling to accept new or disruptive technology trends and business models. With the exception of a few forward-looking utilities such as NRG, the power utility providers of today have been non-reactive to very large and visible recent trends that are a direct threat to their electron sales-only model. In many instances they have been hostile and retaliatory. But the reasons above provide a very strong platform for a competitive advantage that is unlikely to see the electric utility demise anytime soon especially now that they are waking up to not only the threats but the opportunities.

Solar PV, bankability

Utility Duke Energy owned North Carolina project

Many high profile participants and pundits have been predicting that renewable energy will be larger than 50% of total generation in the future and that all clean energy generation will come from the non-utility players. While I have very little doubt that renewables and in particular solar energy will be a large piece of the generation pie (as smart grid technology and grid improvements are implemented), the electric utilities with their regulatory monopoly, cost of capital advantages, and ability to implement at enormous scale will own a much larger share of the clean energy generation than most observers realize.

Utility adoption of renewables, energy efficiency, energy storage, distributed automation grids and other new business models are beholden to the same issues that IPP’s and other non-electric utility energy market participants face – the transition away from a 100-year old, one direction, aging grid infrastructure to a smarter, automated, bi-directional grid that is hyper-efficient.  This will take time but I give the advantage to the larger electric utilities who are uniquely positioned to both steer the smart grid design and deployment and then efficiently phase their participation in the new energy economy accordingly.

Share this:

Creating Climate Wealth, Unlocking the Impact Economy

Everything you need to know about attracting mainstream capital to clean energy solutions.

A great read by Jigar Shah, founder of SunEdison, innovator of the solar power purchase agreement model and former CEO of the Carbon War Room. With real world examples in many energy related industries, Jigar outlines how entrepreneurs and investors can unlock the enormous potential that climate change represents. And how this can be done utilizing existing, commercial off-the-shelf technologies combined with new and innovative business models.

A how to on financing your Climate Change Solution

A how-to on financing your Climate Change Solution

According to the International Energy Agency, $10 trillion can be invested profitably—today—in the world’s existing technologies, making Jigar’s plan of 100,000 companies each generating $100 million in sales a reality in catalyzing a new economy in the process.

A quote from the book that sums a large issue facing the solar industry, ““The utilities are playing this wrong, saying you’re with us or against us. It’s not the solar industry that’s the problem — it’s their refusal to recognize the benefits of new technologies.” I remember Jigar telling me years ago that the utilities where in trouble as distributed generation plants like solar are going to put an enormous pressure on them in the very near future. I was skeptical that the utility monopoly would be in trouble anytime soon.

Fast forward today and the writing is on the wall. With the exception of few forward thinking utilities, the majority are fighting back instead of embracing distributed generation and morphing their models to this new technological and business model. But this makes sense as the electric utilities have made large capital infrastructure and business investments with long amortization horizons and would of course fight for their profitability. Government regulators and the utility industry need to work on a coordinated and long road map fashion to transition to the rapidly evolving distributed generation model.Utility business model innovation can’t happen in a vacuum or without government guidance as its always been highly regulated contrary to the free market fundamentalist’s claims.



Share this: