GTM and Wood MacKenzie commentary on the GND. Lazard: Renewables cheaper than conventional

This is Part 1 of two in a conversation about the Green New Deal. Read Part 2.

Chloe Holden, Wood Mackenzie Power & Renewables: For the most part, cleantech policy battles are being fought state by state, with all the painstaking coalition- and consensus-building that requires. It was in this context that the Green New Deal burst into public consciousness this past December like a comet through the sky. The GND, which Alexandria Ocasio-Cortez and several dozen congressional allies support, is a proposed strategy for tackling climate change that combines a job guarantee and green stimulus package to decarbonize energy, transit, agriculture and industry.

With limited exceptions, clean energy advocates are enthusiastic about this strategy…Broad regulatory change and federal stimulus could drive the continued growth of cleantech, but specific policies could result in big wins — or losses — for industry players. Below, analysts suggest some policies that could emerge as part of a Green New Deal, and the implications of those policies for industries tracked by Wood Mackenzie Power & Renewables.

Green New Deal policy: Provide technical workforce training for cleantech (installation, engineering, etc.)

Daniel Finn-Foley, Senior Energy Storage Analy​st at Wood Mackenzie: Job training programs are shown to work and could offer real pathways for workers to transition from “dirty” industries to clean. 2016 study by MDRC reviewed WorkAdvance — a partially federally funded training program for low-income workers in New York, Oklahoma and Ohio — found that after two years, program participants made 14 percent more money than the “control” workers. The program was hailed for providing job skills in high-demand sectors. Renewable energy qualifies as high-demand today and would be even more high-demand under a Green New Deal.

Dan Shreve, Director of Wind Energy Research at Wood Mackenzie: There are unique regional opportunities for transitioning fossil fuel focused jobs to cleantech jobs. For instance, Wyoming accounts for more than 40 percent of U.S. total coal production. Wyoming also boasts some of the nation’s best wind resources, with the Chokecherry/Sierra Madre wind project by itself representing the potential for 3 gigawatts of wind power. It will take over 100 technicians to operate that wind facility by itself. Imagine the opportunities if additional investments were made to support long-haul, high-voltage transmission to West Coast load centers.

Ravi Manghani, Director of Energy Storage Research at Wood Mackenzie: Thanks to conservative think tank the American Enterprise Institute, we know that it takes roughly 79 solar workers to produce the same amount of electric power as one coal worker (or two natural gas workers).

Dan Shreve, Wind: Any idea how far down the value chain their analysis dove? Wondering if they are accounting for the fuel extraction. Guessing no…

Wade Schauer, Director of Americas Power Research at Wood Mackenzie: Let’s say we get to 100 percent renewable energy in 2030 (or 2035). At that point, what if every solar, wind and storage installer job goes away except what is required for incremental demand growth?

Anthony Logan, Wind Energy Analyst at Wood Mackenzie: Limiting installer jobs to incremental demand growth is unfair. Wind and solar plants retire and need replacement just like others always have, albeit for less cost and labor pull. Of course, this transition may well lead to net job losses. It certainly will in some regions, which is why politicians who don’t keep their word about retraining programs ought to get shoes thrown at them in a West Virginia town hall.

Daniel Finn-Foley, Storage: The jobs question recalls the U.S. interstate highway system, first conceived in the Federal-Aid Highway Act of 1956. When Eisenhower signed it into law, he could not have conceived of the business models that would come to depend on it. The construction workers who laid the asphalt for the interstate didn’t have permanent jobs, true — but once the system was complete, they could get jobs that didn’t exist before, say as truck drivers (and later as Uber or Lyft drivers).

The interstate system allowed people to drive farther to shop, creating the shopping mall; people could then get jobs there, or building the items that were sold there. Perhaps their children and grandchildren were programmers for satellites to help navigate the interstate system or were simply able to get a job out of town because the system connected cities to each other. A Green New Deal must fundamentally transform the electric grid into a platform for innovation and allow new business models to flourish.

Green New Deal policy: Fund clean power infrastructure (transmission lines, EV charging, investments in public transportation, etc.)

Ravi Manghani, Storage: The Green New Deal seems to propose traditional debt investment and even an active equity role from the government. That makes sense, because one of the biggest challenges facing mainstreaming of a new distributed, clean and resilient infrastructure is the availability of patient capital.

That means that while there are several new technologies that could transform the grid for the better, very few viable business models currently exist for those technologies. For example, electric buses are almost as cheap as diesel buses on a total cost of ownership basis (and are even cheaper in some operating conditions). Yet we don’t have more than a few hundred electric buses in the entire country. Similarly, the biggest impediment to larger-scale EV adoption is the lack of widespread charging infrastructure.

Dan Shreve, Wind: The cleantech industry has been exceptionally focused on the need to accelerate the deployment of large-scale energy storage assets to complement an ever-increasing fleet of wind and solar farms. The need for new storage assets is real and should be a core focus of regional utilities and power producers.

However, the need for long-haul bulk transmission requires as much, if not more, attention. Here, we are faced with more of a state and federal policy conundrum versus a technology and economic readiness issue. Wood Mackenzie’s power analysts have rightfully pointed out that exceptionally high levels of renewable energy penetration would require massive storage deployments to guard against reliability threats from weather-related events.

A higher level of integration for regional grid systems could alleviate some of that risk and allow for the development of the nation’s best natural resources. Without strong federal leadership on clean energy, environmental groups have been known to fight regionalization, fearing that it will actually undercut state clean energy goals. But ideally, regional systems are the type of infrastructure that could really drive bipartisan action and best reflects the spirit of the GND.

Replacement and augmentation of infrastructure at a national level increases the resiliency of the grid in a time of increasing frequency of weather-driven outages, while helping the nation guard against the increasing threat of cybersecurity risks, and even driving substantial job creation.

Green New Deal policy: Ambitious renewable portfolio standards in the 15+ states that currently do not have them (or a national RPS)

Daniel Finn-Foley, Storage: A national RPS may be the only politically feasible way to transition the entire economy to clean energy. The issues of energy and climate have fallen victim to dramatically expanding partisan entrenchment over the past three decades, making inroads in heavily conservative states even harder. This doesn’t mean it’s immediately feasible at the national level, but it bears repeating that any full decarbonization strategy would almost certainly require action at the federal level.

Further, a national RPS would create a spectacular number of jobs. A 2015 UC Berkeley study on California’s 50 percent RPS estimated that the existing RPS created 130,000 jobs, measured in job-years, while expanding it to 50 percent by 2030 would raise it to more than 1 million jobs. Extrapolating from this, it is easy to arrive at numbers similar to those presented by Data for Progress, which estimates a 2 percent GDP investment would lead to 15 million jobs over five years.

Dan Shreve, Wind: A national mandate is needed to move the needle in the fashion that is being called for by the GND. The RPS dynamics that have driven demand over the past 10 years can only go so far, with states like New York and California leading the nation.

A federal carbon tax that could be applied to multiple sectors (power, transportation, etc.) has been called for by industry leaders and policymakers have yet to deliver. Utilization of tax revenues would be a key focus area and should be directly tied to job creation/job training to satisfy the basic social justice ideology behind the GND.

Read Part 2 of this Wood Mackenzie Power & Renewables analyst roundtable.

From UC Irvine, its clear that renewable energy is certainly the cheapest technology around and creates jobs – if it can be integrated successfully.

sciencedirect.com/science/article/pii/S2451910318302199#!

While problems will persist with integrating electricity into an energy demand model that peaks between 6-9pm, as the paper categorically states – these problems will not be met with increased grid infrastructure and battery storage alone.  The paper assumes that this can be met with renewably generated hydrogen (currently hydrogen is produced with methane/gas, since “Hydrogen energy storage is one of the only options with sufficient storage capacity, Hydrogen can provide seasonal storage, zero emissions fuel and chemical feedstock, and gas grid can evolve, store and distribute increasing hydrogen amounts at low cost.”)

Green New Deal policy: Simplify the process for siting and permitting of renewable energy projects

Austin Perea, Senior Solar Analyst at Wood Mackenzie: The Solar Energy Industries Association is doing a lot of work to streamline the permitting process for solar because considerable differences exist across states, counties and municipalities. This increases the cost of the overall product, with a second-order impact on the cost of residential customer acquisition due to the time it takes from point of sale to installation (which can average from 30-60 days, depending on the market), as well as the increase in soft costs.

Daniel Finn-Foley, Storage: For storage, the Aliso Canyon procurements proved that energy storage can be sourced and made operational in a dramatically expedited time frame, particularly when compared to conventional fossil fuel generation. However, barriers remain in many markets that slow down storage system deployment.

Interconnection requests, studies and processes, both at the transmission and distribution level, are often cited as one of the key drivers of time and cost facing storage developers today. A top-down reform of the interconnection process would grease the wheels significantly and provide storage with a surer footing.

Of note is that this is already happening on some levels — FERC Order 845 eases interconnection restraints for storage co-sited with existing renewables — but much more would need to be done to make the process developer-friendly.

Austin Perea, Solar: Former Sungevity CEO Andrew Birch actually wrote an article for GTM about this problem in solar a year ago. He highlighted a very instructive comparison between U.S. residential solar costs and other global solar leaders and delineated the oft-ignored vicious cycle that contributes to the high cost of customer acquisition in the States.

Using Australia’s permitting regime as an example, he highlights a significant positive correlation between cost of compliance of permitting plus electrical code and customer acquisition cost (CAC). Looking at Australia’s market, one can’t help but notice that with a less-stringent permitting and code compliance standards, CAC in Australia is one-sixth the CAC in the U.S., with overall system pricing less than half the price of PV in the U.S. Prices in Australia stood at $1.34 per watt in the first half of 2018, while U.S. pricing stood around $2.85 per watt in the third quarter of 2018.

The takeaway is that expensive products are harder to sell to mass markets — especially, as is the case with solar, when most of the low-hanging fruit (i.e., early-adopter demographics) have been reached.

If part of the Green New Deal involved putting in place simpler, national-level permitting standards like those that exist in Australia, we could see a substantial reduction in the price of solar that would most certainly increase adoption simply on a cost-competitive basis, which also means an increase in jobs and gets us that much closer to our ambitious renewable energy targets.

Green New Deal policy: A moratorium on constructing new fossil fuel infrastructure (including natural gas)

Daniel Finn-Foley, Storage: If you live in New England, you might be forgiven for thinking this regulation already exists! Pipelines of all kinds are facing increased pushback at the local level. Federal guidance on them would likely affect extraction operations as logistical challenges and transport constraints impact the bottom line.

Dan Shreve, Wind: An all-out war on fossil fuel development is not in the best interest of anyone, especially renewable energy developers.

Daniel Finn-Foley, Storage: It’s true that even if an effort were made to fully transition to electrification of heating, it would take enough time that pipeline infrastructure would need to be reviewed and potentially replaced to meet heating needs safely. Any moratorium would have to include clauses for updating existing infrastructure for reliability and safety.

Brett Simon, Senior Energy Storage Analyst at Wood Mackenzie: A policy I think would be cool to see at scale would be what New York is doing now with the state’s peaker plant assessments. The state is doing a full inventory of peakers, with a goal of identifying the dirtiest so that they can be incrementally retired to make way for a cleaner generation. It would be awesome to see something like this on a national scale. Challenging? Sure. But the impact on carbon emissions would be substantial.

Dan Shreve, Wind: Intermittent renewable energy assets need balancing resources, and there is no plausible means to develop the sort of energy storage and bulk transmission assets in the 10-year timeframe suggested by GND supporters.

A better solution may be to focus efforts on the elimination of the last remnants of the United States coal fleet and promotion of R&D into carbon capture and storage solutions for the U.S. natural-gas fleet. Over time, the older portion of the natural-gas fleet could be retired in favor of large-scale storage assets as utilization rates dwindle.

Wade Schauer, Power: Carbon capture and storage currently costs $10,000 per kilowatt, and there aren’t very many places to inject the captured CO2 underground. It only makes economic sense for enhanced oil recovery, which kind of defeats the purpose. CCS technologies won’t be in a position to contribute to any 2030 or 2035 targets in a meaningful way.

Potential Green New Deal policy: Regulations on where industry can source electricity

Daniel Finn-Foley, Storage: This point may almost be redundant soon. Renewables are already the lowest-cost option in many markets, and additional scale from a Green New Deal would further cement their lead. Industry will follow the money, making their transition to renewables a natural result of the Green New Deal, rather than a necessary step.

One wrinkle is when you expand the question beyond electricity to other industrial processes — putting limits or guidance on this may be necessary to fully decarbonize, but may be much less feasible from a cost standpoint.

Anthony Logan, Wind: If regulations are imposed on where industry can source electricity, obligated firms will hugely benefit from the pioneering work of commercial and industrial firms we’ve seen so far that have voluntarily sourced renewable power.

Green New Deal policy: Requirements to reduce carbon emissions from the building sector (solar-friendly, efficient, etc.)

Daniel Finn-Foley, Storage: There’s a social justice element to merging the housing and energy industries through regulations like this that doesn’t often get much attention. In California, where housing prices are already the second-highest in the country (behind Hawaii), forcing new houses to have solar panels would increase home prices, potentially exacerbating the problem.

While the overall societal costs may be positive, putting the heat on realtors and homebuyers can cause severe pushback, so combining solutions (like advocating low-income or denser housing regulations in addition to solar or energy-efficiency requirements, for instance) will be needed to truly tackle climate change from the residential sector.

Green New Deal policy: Subsidized smart grid and efficiency retrofit programs for homes and small businesses

Fei Wang, Senior Grid Edge Analyst at Wood Mackenzie: Energy efficiency is not generating as much excitement as other grid edge topics these days, but there is a great amount of work to be done there. This could involve more stringent and better-defined efficiency standards for buildings in all sectors and grades associated with property value (think mandatory efficiency performance disclosures for real estate listings in Europe). The hardware, software and labor required to push buildings to become more efficient are all part of the wider landscape of cleantech jobs, which would overlap with manufacturing and construction as well.

Similar to the mandate of solar PV on new builds in California, mandates of efficiency standards on both new builds and retrofits on existing buildings would be helpful for decarbonization and the growth of cleantech as a sector. For example, intensive efficiency projects can open doors for the deployment of demand management technologies and lay down the foundation for additional flexibility opportunities.

Green New Deal policy: Ending fossil fuel leasing on public lands

Daniel Finn-Foley, Storage: This would be a big deal — a 2018 report by the U.S. Geological Survey reported that a quarter of all U.S. emissions come from fossil fuels extracted from federal lands. Stopping that would not immediately halt those emissions, though, as other sources could make up the gap. Rather, the sudden reduction in supply could drive up prices, making renewable energy even more competitive.

Another study in the journal Climate Change by Peter Erickson showed that the net effect of a “leave it in the ground” approach would be a 5 percent reduction in CO2 emissions by 2030, which is nearly 20 percent of the amount the U.S. had previously committed to under the Paris Agreement.

Green New Deal policy: R&D stimulus geared toward cleantech (grant programs through the DOE, etc.)

Ravi Manghani, Storage: There is precedent for government financial support for clean energy technologies. The somewhat-controversial DOE loan guarantee program lost over $500 million with its loan to Solyndra, but the program also wiped out its losses and has since supported companies like Tesla. In order to mobilize a Green New Deal, we would need similar programs, with pockets a few hundred billions dollars deep.

Daniel Finn-Foley, Storage: According to a 2001 National Academies study, every dollar spent on DOE-led R&D efforts resulted in $20 of economic benefits. As DOE efforts in the intervening years have accelerated job growth in renewable energy, led innovation of low-watt lighting, and spurred other efforts that have resulted in massive job gains and energy savings, it’s not hard to imagine this 20x multiplier being even higher today. Given this, it’s easy to understand why China’s energy R&D budget is nearly three times that of the U.S. as a percentage of GDP, and it’s growing each year. DOE stimulus is a proven economy enhancer, so further investment is a no-brainer to create more jobs and save consumers money on their electric bills.

Ravi Manghani, Storage: Another program worth highlighting here is the stimulus bill, more accurately known as the American Recovery and Reinvestment Act of 2009. ARRA funding was the first massive round of funds to support advanced energy storage projects. The origin of the now-booming energy storage market in the U.S. can all be traced back to ARRA funding. After all, ARRA supported over 500 megawatts of energy storage projects.

Anthony Logan – Wind: Floating offshore will come into maturity right at the end of the discussion timeframe but funding a serious near-term R&D effort would help accelerate cost reductions and make the technology feasible on a much larger scale before the end of the decade.

A large, multi-gigawatt buildout of floating would provide not only higher capacity factors by opening up sites with higher windspeeds in deep water but also mitigate the lack of geographic diversity that will start to hamper the tightly-clustered fixed-bottom offshore wind farm plans on the Atlantic coast. There’s a question of quayside space availability, but on the surface, floating wind’s ability to build the entire unit in port and tow it out to sea would go a long way to mitigating the need to dance around Jones Act restrictions on installation vessels.

Since we would need to work with significant distances from shore to satisfy GND power demand, for maximum effectiveness, any R&D funding for the technology would also need to include an effort to accelerate the already massive reductions in cost per mile for export cables we’ve seen in recent years.

A recent Forbes article by a group of authors hailing from the Colorado School of Mines and Baker Institute reiterates these points; making the economic basis for shifting towards hydrogen very audible.
forbes .com/sites/thebakersinstitute/2019/02/01/re-envisioning-the-role-for-natural-gas-in-a-clean-energy-future/#3262a63a1fb0

By the time we get to 80% renewables and actually need to worry about “deep storage” the technologies available will be vastly different than today, so we’ll have lots of options. What won’t be vastly different are the laws of physics and economics that clearly show this hydrogen / CCS setup to be a giant dud.

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Nov 2018.  George Harvey did a report recently about Lazard’s LCOE analysis #11 released in November, 2017. In it, he speculated that Lazard was being too conservative when it projected an annual decrease in the cost of renewable energy of around 6% a year. The latest Lazard LCOE analysis, #12 in the series, is now available and it shows George was correct. The levelized cost of solar fell 13% over the past 12 months and onshore wind fell 7%.

In the preface to Analysis #12, Lazard points out that in arriving at its conclusions, it takes into account “the LCOE analysis for various generation technologies on a $/MWh basis, including sensitivities, as relevant, for U.S. federal tax subsidies, fuel prices, and costs of capital.” It includes “a decomposition of the LCOE for various generation technologies by capital cost, fixed operations and maintenance expense, variable operations and maintenance expense and fuel cost, as relevant.”

In the summary to its latest report, Lazard says, “Levelized Cost of Energy Analysis #12 shows a continued decline in the cost of generating electricity from alternative energy technologies, especially utility-scale solar and wind. In some scenarios, alternative energy costs have decreased to the point that they are now at or below the marginal cost of conventional generation.”

“The low end levelized cost of onshore wind-generated energy is $29/MWh, compared to an average illustrative marginal cost of $36/MWh for coal. The levelized cost of utility-scale solar is nearly identical to the illustrative marginal cost of coal, at $36/MWh,” the report says. “This comparison is accentuated when subsidizing onshore wind and solar, which results in levelized costs of energy of $14/MWh and $32/MWh, respectively.”

The next chart shows the decline in cost of wind and solar energy from an historical perspective. “The mean levelized cost of energy of utility-scale PV technologies is down approximately 13% from last year and the mean levelized cost of energy of onshore wind has declined almost 7%.”

Storage Costs Are Also Declining

When the conversation turns from generating electricity to storing it in batteries, lithium ion is the least expensive option, although Lazard does note that cobalt and lithium carbonate are both commodities that are subject to price fluctuations. “Project economics for a variety of illustrative energy storage applications have modestly improved year-over-year, reflecting improved costs rather than rising revenues, which remain dependent on local market dynamics or utility tariffs. Ancillary service products (e.g., frequency regulation), demand response and demand charge mitigation represent potentially attractive revenue opportunities.”

Finally, Lazard’s LCOE analysis #12 has this to say about the synergies available between renewable energy generation and battery storage. “Combining energy storage with solar PV can create value by sharing infrastructure (e.g., inverters, interconnection), reducing curtailed production, capturing ‘clipped’ solar production and/or through charging cost savings. Currently, the economics for solar PV + storage systems are most attractive for commercial use cases, but remain modest for residential and utility-scale projects.” (except in places like Colorado, where it is already competitive at utility scale)

The Takeaway

The range of data shown in these charts indicate that the cost of renewables varies considerable from region to region and from one project to another. A new record low price for solar in Saudi Arabia does not necessarily mean the cost in Steamboat Springs will be as low. Nevertheless, renewables now cost the same or less than conventional generation from coal. That’s critical to decarbonizing the energy sector.

Flowery speeches and heartfelt protestations from politicians won’t be enough to stop the torrent of carbon dioxide emissions spewing into the Earth’s atmosphere, but economic considerations will. The biggest gains are to be had in the area of energy storage, which is still fledgling technology compared to solar and wind generation. Displacing coal, natural gas, and nuclear depends on athe combined price of making and storing renewable energy. Solar and wind may be getting near the bottom of the cost curve but there are still big gains that await on the storage side of the equation.

The one factor that makes conventional generation riskier than renewables is the cost of fuel. When it comes to long term planning, the cost of sunshine and wind is fixed. No need to worry about embargoes, shortages, or one nation cornering the market and driving up prices. The era of renewables is upon us, and not a moment too soon.

See also: Whoo-Hoo! Lazard’s Levelized Cost Of Energy Version 12.0 Is Here!