Thursday, September 29, 2011

Offshore Wind, Revisted in 2011


The Ormonde wind farm, England - 30 x 5 MW RE Power wind turbines = 150 MW, newly up and running
from http://www.rechargenews.com/multimedia/archive/00034/webvattenfalloffshor_34400b.jpg

Introduction
The very recent NYPA decision to snatch a defeat from the jaws of victory - in other words, demonstrate another profile in cowardice with respect to putting real money up instead of empty rhetoric with respect to doing something about Global Climate Change, real economic development and regional manufacturing revitalization - was tragic, no doubt about it. However, that seems to be the Standard Operating Procedure from the People's Power Company of New York State, and many would suffer from heart palpitations and chest pains at the shock of seeing different behaviors exhibited from NYPA. After all, NYPA is sitting on a humongous, non-depleting gold mine at Niagara Falls - both economic and political power are spin-offs - so why change? Besides, how would certain Republican NY State Senators collect campaign contributions from frackers and financially related entities if a primary motivation to use of fracked sourced methane - electricity generation - was made obsolete by generating around 200 MW (delivered basis) of non-polluting electricity from 500 MW of installed capacity? Inquiring minds might want to know such things...

Discussion
Offshore wind on the Great Lakes is a great potential source of non-polluting electricity. From an old estimate based on rather primitive 2004 era technology and a 40 meter depth limit, up to 250 GW (about 14 times NY State average usage or 16 times what we actually generate), of average electrical production could be extracted from the winds blowing across shallow Great Lakes waters - see "A Great Potential" at this site: http://www.4shared.com/document/1LzGtIFB/AGreatPotential.html. However, that 40 meter depth limit no longer applies - using approaches such as jack-up foundations and floating foundations, essentially all of the Great Lakes can be tapped - for example, the second deep-water commercial scale trial was recently assembled in Portugal (the first was the Hywind project in Norway) - see here for new 2 MW trial Portuguese assembly video: http://www.vestas.com/en/media/news/news-display.aspx?action=3&NewsID=2829. And the three things (other than a will to do it) stopping this are a power purchase agreement and perhaps some additional transmission capability and electrical energy storage facilities (pumped hydro).

And since far more capacity to make electricity exists than there is a market for it in the near shore load centers (all of Michigan, Chicago, Cleveland, Toronto, Buffalo, etc), obviously, not all of the Great Lakes needs to have its 10 to 20 MW per square mile wind turbine covering. In general, the 44 million people near the lakes use an average of 75 GW, and almost all of that is pollution sourced at present (coal, nukes, Ngas), though it certainly does not need to be. And don't forget about the tremendous onshore potential of the Great Lakes states, which also works better when the offshore regions are also tapped - see the 2010 US Wind Map at http://www.windpoweringamerica.gov/wind_maps.asp.

The offshore wind business is a fast growing segment, with huge capital requirements to set up the installation infrastructure (lots of various sized boats, barges, jack-up rigs, cable-laying boats, factories to manufacture high capacity underwater transmission cable, offshore transformer substations, foundations for these, dockyards to manufacture of these, etc, etc, etc). Translated, that is also huge job creating potential - it's the money spent that makes the jobs, after all, as this is not a charity arrangement. The going rate is about $4.5 million per MW of capacity, though economies of scale should drop that a bit. About 75% of the total costs will be things other than the actual turbine, so even manufacture of the turbine is not the major expense/major job-creating part of this system. And let's not forget the banking and financing aspect - many of the deals announced in Europe are in excess of $US 1 billion per wind farm. The expected growth rate of 60% per year through 2017 is also quite impressive, and if it comes to pass, with 70 GW installed (around 4 GW now), that will represent a real investment of $US 315 billion (see http://www.offshorewind.biz/2011/09/28/danotek-presents-7mw-pm-generator-usa/). The driver for this is northern Europe, especially Germany (who announced they are dumping nukes as an electricity source in response to the Fukushima FUBAR - and impending approximately 1 million dead people in Japan due to the radiation spawned cancers tragedy) and Great Britain (who recently ran out of natural gas from the North Sea fields, and faces an increasingly expensive import tab).

But hey, we're NY State, we don't need no stinkin' manufacturing jobs, especially in Western New York.... So, move along now, never mind..

One spot to get an idea on how fast the offshore wind biz is progressing can be seen at this website - http://www.thewindpower.net/windfarms_offshore_en.php. So far, the installed capacity is 3587 MW in 56 wind farms and from 1297 turbines. Since an average net output for these would be around 40%, this is around 1400 MW on a delivered basis. The oldest wind farm (and still operating) was installed at Vindeby in Denmark (1991), consisting of 11 x 450 kw units. The present average size is near 2.77 MW.

At the present time, 5189 MW is under construction in 14 arrays (plus a one unit demonstration site) using 1351 turbines, or an average 3.84 MW per turbine. One of these arrays - the Ormonde array in England - is quite typical of the "new breed" - is undergoing commissioning, and is made up of 30 x 5 MW units. Most wind farms from now one that are offshore will be in the 5 to 7 MW range. This new construction capacity represents an investment of around $US 23 billion. The largest of these is the London Array, consisting of 278 x 3.6 MW Siemens turbines.

But all of this pales in comparison to the "planned" facilities. There are now so many of these that just the ones whose name starts in the A to F category added up to 86,827 MW in 166 wind farms. Based on the phone book and dictionary, the whole alphabet's worth would 291.3 GW in 567 wind farms, averaging in at 523 MW per offshore wind farm, or about 105 x 5 MW turbines per array. This is an investment of around $US 1.3 trillion. Too bad NY State decided to say "I'll pass" on this one (it takes around 5 to 6 years before one of these comes to fruition, and most of that time is hustling up the money, as well as the wind speed and wave height studies as well as bathymetric/soil strength documentation).

Not all of these proposed wind farms will get built (NY had 12 GLOW projects listed, all essentially deceased now). Those NY wannabes totaled up to 6500 MW, or roughly an investment of $29 billion, and this would have been enough of a market to justify a local large scale wind turbine manufacturing facility AND more importantly, supply chain. Even at a paltry 35% net output (Lake Erie and Lake Ontario winds are decent, but not as energetic as those in the North Sea), that's 2,275 MW of continuous generation, or enough to eliminate a big part of the Ngas sourced electricity in NY State (or most of the output from the 4 nukes located between Rochester and Watertown).

However, let's say that you are a nefarious business person in the business of selling natural gas in NY State. That 6500 MW of offshore wind would not make you happy. A similar quantity of onshore wind would hopefully make you even less happy. All of those dreams of erecting fracking wells across a lot of the southern border of NY State would get ... deflated. So your dreams of big bucks from the sales of mass quantities of mined methane (natural gas) would go "up in smoke", to quote some really funny and really famous recent ... philosopher/comic/actors. Hopefully you won't take your anger out on "the little people", including children and pets should the common good prevail and your greed fail...

Of course, at present, with electricity prices paid to generators going for less than 4 c/kw-hr in WNY, offshore at a range of 12 to 20 c/kw-hr seems tough to justify. But those cheap rates only exists that cheaply due to massive governmental subsidies. For example, the value of the Price-Anderson Act, which allows nuke sourced electricity to even exist as a commercial possibility has been estimated at between 20 c/kw-hr to $3.20/kw-hr. Even these conservative studies ($100 billion disaster cost, which is understated by a factor of at least 10, and the real probabilities used are far too low) give 3.58 c/kw-hr (2000) - see http://www.genevaassociation.org/PDF/Geneva_papers_on_Risk_and_Insurance/GA2000_GP25(2)_Heyes&Liston-Heyes.pdf and http://blog.sustainablog.org/2005/11/findings-on-us-nuclear-subsidies/. (See also http://thinkprogress.org/romm/2008/08/07/202962/how-much-of-a-subsidy-is-the-price-anderson-nuclear-industry-indemnity-act , http://www.dblinvestors.com/documents/DBL_energy_subsidies_paper.pdf as well as http://www.nuclearpowerdaily.com/reports/After_50_Years_Nuclear_Power_Is_Still_Not_Viable_Without_Subsidies_999.html - it's a difficult subject. Bottom line - nukes are not even possible without the Price-Anderson Act subsidy, and as Fukushima has shown, stuff happens. The coal units that can chug out electricity at 3 c/kw-hr get to avoid the cost of their particulate pollution and CO2 pollution valued at near 9.5 c/kw-hr, in addition get to benefit from 0.5 c/kw-hr worth of subsidies for coal mining. As for Ngas, just what is the real long term price - is it the $15/MBtu of 3.3 years ago, or the $3/MBtu of 2 years ago? According to Credit Suisse, $10/MBtu is what is required to justify the investments needed to keep the Ngas flowing at today's rates, and it is going up at a rate of near $1/MBtu per year.

Obviously, for such a capital intensive industry (wind turbines), those with access to the least expensive capital (longest term, lowest interest rate money, in the billions) would be able to assemble the lowest cost wind farm, on or offshore, but especially for offshore. And who has the best credit rating in NY, even better than NY State's government? NYPA, that's who. They recently offered bonds for 10 year terms at 3.25%, and 20 year ones could now be offered at near 4%. If a wind farm installed using 11.5%/20 year costing money would come in at 20 c/kw-hr, NYPA rates would allow that same wind farm to come in at 14 c/kw-hr. Add in the REPI benefit which NYPA would quality for (a 2.1 c/kw-hr for 10 years rebate from the Federal Government), and that's 13 c/kw-hr electricity for 20 years, and in pretty massive quantities, enough to seriously suppress the demand for natural gas by avoiding the need to burn gas to make electricity.

Sounds good, right? But no dice.

Developing such projects has often been described as a "Chicken or Egg" process - as in which comes first, the demand for the product (electricity from offshore wind) or the supply of it. Any question of which one the NYPA rulers are should now be firmly laid to rest - it's the Chicken.

BTW, supposedly NYPA has bought all of 70 MW of onshore wind (from the Maple Ridge Farm) via a PPA in the last 7 years. That is quite paltry compared to what they need to do, or to make up for all the nasty they did by buying and installing 2 nukes in NY State (Fitzpatrick and Indian Point 3). They need to up that to at least 7000 MW of NY wind power, ASAP, and not by 20 years from now.

Anyway, that is a political decision, despite claims to the contrary. Perhaps it is time to get politicking with regards to the People's Power Company of NY (NYPA), which seems to be rather completely captured by those representing the polluting side of things.. Of course, the same could probably be said about our nominally "Democratic" Governor....

DB

Thursday, September 15, 2011

Variations on Merit Order Effect - Alice in Wonderland, Again

What lies beyond that door?

http://www.starpulse.com/Movies/Alice_in_Wonderland/gallery/ALICEWONDERMV011/

Introduction
This may seem strange (hence the Alice reference, and the "curiouser and curiouser" aspect), but adding more no-fuel-needed renewable electricity into a system that NY State has LOWERS the spot market price for electricity, despite the high capital costs of such projects relative to using ancient, paid off facilities. On the other hand, adding more fuel-needed pollution sourced (makes CO2 and other air pollution) electricity into the grid RAISES prices for all electricity sold for that time period in which prices are determined (generally one hour intervals) up to the "marginal price" (the most expensive bid in the set of bids needed to supply the hourly demand, determined from lowest to highest price). After all, even hydropower output is difficult to predict on a long term basis, as droughts can really ruin such predictions, and Global Climate Change is not making matters easier, either. And fossil fuel prices - especially natural gas prices - are notoriously unpredictable since 2000, when "conventional" North American gas depletion became noticeable, and continuing production at essentially constant rates required increasing amounts of more expensive "unconventional" gas. Like coal bed methane, and fracking tight sands in the Rockies and tight shales in the Appalachians, for example.

Discussion
Renewable electricity, and especially wind based electricity, needs to get sold whenever it is made. The amount made each year can be accurately predicted from studies of previous historical wind data at a given site, though predictive wind maps are also pretty good at coming up with the correct answer, too. However, predicting the wind speed for each hour of a given day more than a week in advance is really not practical, and for two weeks in advance, just not mathematically possible. You may as well try and accurately predict when the next nuclear reactor meltdown for any reason will happen - which is also mathematically impossible. But, financing for wind turbine projects IS practical because all that really matters is how much electricity gets made in a year, not necessarily exactly when it is made at any given site.

Because of the need to sell electricity whenever it is made, wind turbine owners that operate in "competitive" markets like NY State have to set their hourly bids in such markets below the price of any other bids. On the other hand, that would be foolish in the extreme for power generation owners where fuel cost is THE MAJOR EXPENSE, and this especially applies to natural gas sourced facilities. After all, why spend more to make electricity than it costs to buy the fuel to generate the electricity? Logic says that fuel should only be consumed when more money will come from sale of that electricity than it costs to buy the fuel to make that electricity. Thus, fuel cost is the majority of their "marginal price".

In other words, the prices of the bids to supply electricity for each hour do not necessarily reflect the costs to make electricity for that hour. Yes, Alice, we have arrived in Wonderland. Another wonder is why a "market" like NYISO Zone A (Western NY) would even be considered "competitive" - coal is still less than 50% of the fuel cost of delivered bulk natural gas (Ngas) - today's price would be the Henry Hub gas price ($3.98/MBtu - see http://www.oilnergy.com/1gnymex.htm) plus about $1.30/MBtu (for pipeline transport), or roughly $5.30/MBtu. Coal prices are estimated by the U.S. Energy Information Agency to be $2.37/MBtu - see http://205.254.135.24/steo/ - 45% of that of Ngas. And that Ngas price is less than half of the price needed to financially justify new gas wells, and especially "unconventional" (including fracking sourced) gas. And 3 sites - Dunkirk, Huntely (NRG) and Somerset (AES) can supply almost all of the average electricity load which averaged 1762 MW in 2010, and especially ALL of the non-NYPA load. NYPA supplies about 400 MW to local customers (per the Federal Power Act), so the non-NYPA Zone A load would be around 1400 MW. However, wind supplied 85 MW, landfill gas supplied about 25 MW, trash burning supplied another 25 MW and NYPA's pumped hydro unit supplied 57 MW, so Ngas is, on average, not needed.

After all, the conventional definition of "competitive" is that any one supplier cannot affect the price of that product (by adding more supply/withdrawing supply/raising or lowering the price above or below the "equilibrium price"). That simply is not true for WNY electricity. This is neither monopoly nor competitive - it is "oligopy", with its own sets of rules. And in this netherworld of bent reality, Ngas sets the marginal price when demand is above average/generally "peak", and coal sets the marginal price when demand is lower than average/generally "non-peak". Renewables, and especially wind sourced electricity, is bid in below the price that coal is bid in, so that if wind derived electricity is made, it gets sold at some price (and ANY price), a price that is only known after the fact. And this is why spot market prices for electricity drop as more wind sourced electricity is added into a grid, and why prices rise as more natural gas is added in. However, using more Ngas to make electricity raises the demand for Ngas, which in turn raises the price for Ngas, so more Ngas used to make electricity also means higher home heating prices for the vast majority of us WNY'ers who use Ngas for home heat and hot water, as well as for employers and governments (schools, especially) who use it for heat.

So, if you want lower spot market prices for electricity (and the price of most electricity in sold WNY is determined in this manner), then you want to add more wind to the system. If you want to see high heating costs AND higher electricity prices, then use more Ngas to make electricity. It is THAT simple.

Electricity grid pricing systems based on the "competitive" and "marginal pricing auctions" are in effect for about half of the states in our country, and they exist throughout the world. They sort of make sense when fuels are used to make large percentages of the electricity (mostly coal, Ngas), and when the prices of those fuels tend to fluctuate significantly over time. They make no sense for renewable energy, or when long term contracts are used to obtain the bulk of a system's electricity. For example, exports of coal from the U.S. East Coast (mostly West Virginia) this year will be near 150 million tons, or 15% of total coal mined, and this pulls coal price up (now near $75 to $80/ton - http://205.254.135.24/coal/news_markets/ and http://205.254.135.24/coal/nymex/html/nymex_historical.html). But, when renewables and fossil fuels interact in such systems, the Merit Order Effect shows up, and as more renewables get added in/displace Ngas and eventually coal (which also has fluctuating prices), spot (also know as "pool") prices drop.

Tales from South Australia
Australia is a country with a lot of coal in 3 of it's 7 states (New South Wales, Queensland, Victoria) - a LOT of coal. It is a major exporter to China, India and Japan. Despite an awesome wind resource with a relatively small population over a land mass the size of the US or Canada, coal still rules as the main way to make electricity, with Ngas also in the mix. But, as wind sourced electricity gets added, prices for electricity keep dropping, first forcing Ngas out of the market, followed by coal. Australia, like the U.S., could easily supply all its electricity with wind and have plenty of capacity left over.

Anyway, here is the trend ( from http://www.cleanenergycouncil.org.au/cec/resourcecentre/reports.html - Transmission and Congestion report (.pdf download)):


The graph may be a bit obtuse, but it has great significance for NY State. It is from a report on South Australia's electricity system as that state starts to displace large amounts of gas fired electricity with wind, and what happens to electricity prices when that occurs. The report also concerns efforts to use "CO2 credits" as a way to mitigate CO2 pollution; Australia has way too much cheap coal usage, as well as a big attempt to use a recently discovered offshore natural gas field located between East Timor and Western Australia (Indian Ocean) to make electricity. The report can be downloaded here:

http://www.cleanenergycouncil.org.au/dms/cec/reports/Clean-Energy-Council-report-on-network-congestion/Clean%20Energy%20Council%20report%20on%20network%20congestion.pdf

The graph shows that as more wind is added to the system, electricity prices drop. They also have one of these "marginal price systems", such as the NYISO is, which sets spot market prices based on hourly bids and whatever the last most expensive bid is in order to satisfy the hourly demand (marginal price). Most of the electricity for eastern Australia is provided by burning coal in paid off (as in, generally zero capital cost) plants, despite the enormous wind resource (they also have a humongous solar resource, but, given the wind speeds, solar thermal and solar PV is more expensive, by at least a factor of 3 (the interior often has 300 to 350 days of full sun per year; in WNY, we have less than 180 full-sun-equivalent days/year)). And besides, with less than 8% of the population of the US, going renewable should be a piece of cake, except for those super-cheap coal supplies...

You can take the graph and get a similar result with the profit rates (and also profits) obtained by coal burners making electricity. Replacing gas with wind takes a bite out of coal profits, and coal to electricity profits, as well as profits of companies who own old nukes. The added benefit is less Ngas usage, less demand for Ngas, and lower prices for remaining customers of Ngas, particularly industrial and residential users. This has the added feature of leaving customers with greater disposable income, and making their manufacturing industry more competitive, leading to better economic outcomes.

On the other hand, if you twist this situation and start replacing some coal with MORE natural gas fired generation (or wind turbines with Ngas, or any increase in electricity usage with Ngas instead of wind), coal burner profits will actually RISE, because they can charge more for for the electricity that they do make. And the increased demand for Ngas will raise the price of Ngas, which in turn will raise the profit rate for those burning coal to make electricity! Wow, what a feedback situation. Of course, lowering the demand for coal slightly will drop coal prices, and lower coal prices PLUS higher prices for the electricity profit gives even greater profits. So why on earth would the owners of coal burners object to that? Plus, those supposedly infinite reserves of Ngas aren't infinite; in fact, they are quite finite, and quite temporary. And never underestimate the ability of a steady growth rate in consumption of a finite resource to burn through that resource at a rapid rate - that is the basis for the math behind Peak Oil, after all (the Logistic Equation - see http://en.wikipedia.org/wiki/Logistic_function and http://en.wikipedia.org/wiki/Hubbert_curve), and the reason oil prices are near $90/bbl, and not the $25 to $40/bbl that many "conventional" energy experts predicted, even as late as 2007.

The moral to the story is that if you want to replace the use of coal to make electricity in NY, DO NOT USE natural gas, as that will just amp up the profit rates to amazing level of the "baseload polluters" - nukes and coal. And just for good measure, two other bad things happen. Firstly, consumers/ratepayers (most of whom are poor to middle class) get screwed royally when the average cost to make electricity becomes vastly disconnected from the average price of electricity, since price gets set by the marginal bid, not the weighted average of bids for any given hour. And next, the profit rates for pollution based generators, which determine the motivation to continue their operation, remain high, and as natural gas prices increase over time (inevitable, given resource depletion and the gas industry's best wish of increasing gas consumption rates), so do the profit rates for "baseload polluters" increase. And in NY State, the Ngas can only be supplied by a frack attack. So if you want to put a big crimp in the frack attack, work to cut DOWN on Ngas usage NOW, not sometime in the distant future.

The best solution is to not go the Ngas diversion, and go directly to wind turbines and increased efficiency to deal with electricity supply and demand. Finally, the huge volume of fugitive CH4 from fracking renders the Greenhouse Gas argument (use Ngas instead of coal/less greenhouse gas warming from the lower CO2 emissions per unit energy delivered than from coal) pretty much irrelevant. As for air pollution - it's particulates and heavy metal poisoning from coal, or ground level ozone (photo-oxidation of that methane) and radon from the fracking. And then it becomes a fine example of a "Morton's Fork" dilemma - see http://en.wikipedia.org/wiki/Morton%27s_fork - that is, a choice between two equally bad options. In reality, this is actually a false choice.

BTW, whenever the phrase "natural gas" pops up, does the pre-programmed word "clean" pop into your head? If so, work on it, as, with practice, it will go away.

DB

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