Can Renewable Energy Make America Electricity More Affordable, Reliable, and Abundant than Ever?

The Environmental and Energy Study Institute (EESI) held a briefing that challenged widely held assumptions about renewable energy and the infrastructure needed to connect it to the grid. The Midwest’s steady winds could, in theory, power the entire country, according to an analysis conducted in 2010 by the National Renewable Energy Laboratory and AWS Truewind, a consultancy. So could solar energy in the Southwest. Moreover, the transmission investments needed to tap the enormous potential of American renewable resources can make the grid more efficient and reliable at the same time. And renewable energy is increasingly competitive in some power markets with traditional fuels like gas and coal. At this briefing, various perspectives regarding the overall economics, capacity and reliability of integrating renewable energy into the grid were presented.

The briefing coincided with the release of a new report, The Potential Rate Effects of Wind Energy and Transmission in the Midwest ISO Region, commissioned by the Energy Future Coalition and produced by Synapse Energy Economics, which concludes that adding more wind power to the Midwest’s grid would place downward pressure on energy market prices and rates, even after factoring in the costs of the additional transmission needed to connect it. Traditional power plants face fuel prices that fluctuate dramatically over time and they must also address regulatory uncertainty and pollution control upgrades, whereas, for example, solar, wind, and geothermal power plants are not subject to such fuel price volatility. What mix of renewable resources and traditional resources is actually the most reliable and cost effective system to meet our energy needs and to reduce greenhouse gas emissions?

Highlights:

• Contrary to widely held assumptions, adding renewables to the grid could lower rates for consumers in certain circumstances, since the power industry turns on units in order of their cost-of-use. Energy sources with low operating costs, such as wind turbines, will displace higher cost power sources, such as coal-fired power plants.
• Synapse Vice-President Ezra Hausman presented his consultancy’s report, The Potential Rate Effects of Wind Energy and Transmission in the Midwest ISO region, which concludes that adding more wind power to the Midwest’s grid would place downward pressure on energy market prices and rates, even after factoring in the costs of the additional transmission that would be required.
• For instance, according to Hausman and his colleague Robert Fagan, retiring 12 GW of coal power and building 40 GW of wind capacity in the MISO region would reduce average energy prices by $15/MWH. This is due to the Supply Induced Price Effect (SIPE), which arises from the introduction of a low- or zero-marginal-cost energy supply (such as wind) making it possible to meet demand at a lower marginal cost. The SIPE effect was significant in several different scenarios considered by Synapse.
• The Midwest has abundant wind resources. The Midwest Independent System Operator (MISO) expects to have 14,000 MW of wind, accounting for 10 percent of its power generation, by the end of 2012.
• Years of practice, better wind forecasting, dispersing plants over wider areas (since the wind is likely to be blowing somewhere), and the implementation of market rules and technical innovations that make wind dispatchable (able to ramp generation up or down at very short notice) are increasing operators’ ability to efficiently and reliably use wind energy in the power grid.
• The rise of renewable energy has increased the focus on the energy grid and led to the upgrade and construction of transmission lines. However, in the Midwest, wind capacity is outpacing transmission line construction according to Joe Gardner, the executive director of real-time operations for the Midwest Independent System Operator (MISO).
• Fred Morse, a senior advisor for Abengoa Solar, made the case for Concentrated Solar Power (CSP), which relies on focusing direct solar radiation to create very high temperatures, generating steam to run a conventional steam turbine. The Southwest region is blessed with abundant solar resources.
• Concentrated solar plants have low operational costs, and provide clean, reliable domestic energy, energy security, and long-term jobs.
• At concentrated solar plants, solar energy can be stored as thermal energy in molten salts. The salts provide heat to run steam turbines when the sun is not shining, reducing variability and increasing reliability.
• Federal loan guarantees and investment tax credits help overcome the high upfront costs of building large-scale concentrated solar facilities. Building new facilities generates domestic manufacturing and jobs, since such American solar plants have an extensive U.S.-based supply chain; Abengoa itself has a supply chain of 29 contracted suppliers spanning 22 states.
• Transmission lines benefit consumers for a relatively small price by ensuring reliability and efficiency, interconnecting renewables, and allowing the development of clean energy resources (which could lead to lower rates in the long run, according to the Synapse study).
• Transmission costs represent only about five percent of a customer’s electricity bill so that a large increase in expenditures for transmission lines would result only in a small change to electricity bills. Synapse estimated a 2:1 benefit for building up the transmission system (cost savings to the consumer vs. costs to build the transmission), which they said was very conservative.
• James J. Hoecker, counsel and advisor to the Working Group for Investment in Reliable and Economic Electric Systems (WIRES), noted that the construction of $3 billion worth of transmission in the next 20 years would create 150,000-200,000 full-time equivalent jobs annually.