Thursday, March 29, 2018

Renewables are shifting the nature of the economics of grid scale generation.

The NYT had an interesting report on the shifting economics of natural gas power plants.

Again nothing is going to change soon, but it appears that with the growth of solar and wind energy technology, it is now cheaper and faster to construct a solar/wind plant than a natural gas powered plant.

It may be recalled that natural gas was proposed as a solution to the problems of coal (large transport costs and high maintenance costs due to soot and other nasty byproducts) - and it did very well in the US. With all that excitement about natural gas in the US and Europe, half the world lit up with conflicts over "plaza rights" for natural gas pipelines (recall Unocal in AFG, BTC under Russia, Kirkuk-to-Turkey, Iran-Pakistan-India, Shia Gas v/s Sunni Gas in Syria, Yamal-I/II in the Ukraine, NordStream under the Baltic etc...) .

Now it turns out that after going to all that trouble to bring down the marginal costs associated with natural gas power plants - the capital costs of constructing a natural gas powerplant are becoming too high *relative* to renewable plants.

While renewable plants suffer from plant load factor issues at the individual location level, if they are spread out over a large enough area - then these factors are not as much of an issue. If the wind doesn't blow in my plant in Arizona, it will be blowing in Colorado or Montana, and I can just buy excess electricity from there.

It is important to note that the total installed natural gas capacity is far in excess of what wind or solar produce today and electricity generation accounts for about 35% of all gas consumption, but that may not be the case in the future if investment scenarios in natural gas powered generation are driven by asymmetric capital costs.

And if you are wondering about coal, here a relatively recent analysis by the EIA [2].

This could lead us to two places.

1) A scenario in which natural gas producers pay pliable politicians (GOP) to hinder the growth of renewables until they have had time to dump their natural gas power plant options on unsuspecting and ill informed investors (this seems to be going on right now with Rick Perry's DOE) or

2) A scenario in which natural gas producers are engaged in a more constructive discussion on how to shifts patterns of natural gas usage to support the development of renewable sources. I am talking about things like biogas and district heat grids that displace existing and inefficient oil heating in cities. This is happening in places like the Netherlands and Denmark- those Dutch and Danish folks have their heads straight on this issue.

I fear we Americans have our heads stuck too far up our own asses to to something as intelligent as what the Danes/Dutch are doing. We will likely continue to invest in an antagonistic relationship between natural gas producers and renewable energy options.

And with that we will remain wedded to dated ideas of conflict with places like Iran.

And to think - we were once the leaders in district heating!! Back in 1882 New York City had the first district heating grid in the world.[1]


Post a Comment

<< Home