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Distributed Energy Resources Give You Options

By Evelyn Teel

In the earliest days of electricity, generation happened close to where the electricity was used. A small hydro facility might have been used to power a single factory, or a coal-fired generator might have electrified a small town. As demand for electricity grew and we developed the capability to move it over long distances, power plants were often built in more remote areas. This allowed us to leverage distant resources such as waterfalls, build larger plants that could not be accommodated in denser areas, and keep pollution from population centers. Generation now may be coming full circle, with increased interest in Distributed Energy Resources (DER) – that is, a source or sink of power, whether located on the electrical distribution system or behind a customer meter, that operates near the facility in which it is used.

DER can provide power to one building, a campus, or even a town. In many cases, DER are connected to the grid to ensure stable, efficient power availability. If the distributed resources are not producing all the electricity the facility needs, the facility can pull power from the grid. Likewise, if the distributed resources are producing more electricity than the facility needs, the excess, in some cases, can be sold to the grid. Some systems are able to be disconnected from the grid, or “islanded,” in the event of an emergency. This means that if the rest of the grid goes down or experiences blackouts, the facility can still operate on its own, potentially at a reduced level. In some cases, the facility is permanently islanded, and therefore is disconnected from the grid entirely. This is less common, but can be an option for facilities operating in remote locations or requiring extra security.

Types of Distributed Generation

Depending on the energy requirements of the facility, the characteristics of the surrounding environment, and any organizational preferences, distributed generation can be composed of a variety of resources. The most basic type of resource might be a generator, providing emergency power in the event of a grid outage. From there, solutions can get increasingly complex, and may include one or multiple types of generation. 

Solar, a common distributed resource, must be balanced by either grid connectivity or other resources, due to its intermittent nature. Natural gas-fueled microturbines can be used, and a combined heat and power system can enable capture of waste heat from those microturbines, for space or water heating. Combined heat and power also can be leveraged in conjunction with industrial processes that have a thermal load. 

Microgrids may incorporate battery storage in order to store excess electricity for times onsite generation is not producing. The list of possible distributed generation resources goes on: wind, hydropower, geothermal district heating, geothermal heat pumps, waste biomass conversion to renewable natural gas, waste incineration, anaerobic digestion, and more. Careful consideration should be given when developing a system to ensure that the selected type(s) of generation is/are robust, reliable, and efficient.

Benefits of Distributed Energy Resources

As the costs of DER resources fall – either through reduced equipment costs or decreases in fossil fuel prices – there can be cost savings to implementing distributed generation resources. Energy costs may also become more predictable if not tied to wholesale electricity prices. 

One hidden source of cost savings with distributed generation relates to the fact that, when transmitting power over long distances, some of the electricity is lost in the form of heat. These transmission and distribution line losses are less of an issue when power is generated close to where it is used (i.e., in distributed generation). Though consumers do not directly pay for this lost electricity (approximately 5 percent of generated utility electricity), it is wrapped into the total cost of energy. When generation happens behind the meter and close to a facility, the consumer does not end up paying for lost electricity. Less wasted energy also means less unnecessary pollution. 

Microgrids, or distributed generation that can operate separate from the utility grid, can improve reliability and be integral to disaster planning. When a facility is no longer fully reliant on the grid for power, it is less susceptible to issues like grid outages and brownouts. If a facility is equipped to draw power from distributed resources, storage, and the grid, it benefits by having a fallback in case one power source fails. It is important to note, however, that some causes of grid outages, such as severe weather, natural disasters, or an electromagnetic pulse, can simultaneously damage distributed resources and grid resources. In addition, it is important to note that utilities may add “standby” charges in order to provide fallback power.

In addition to enhancing reliability, DER can also enhance security. Especially for facilities that require 24/7 uptime, distributed resources can provide a backup in the event that utility grid service is unavailable. These distributed resources may be as simple as backup generators, or may be a complex microgrid with multiple power sources, including storage. Facilities that require the utmost security may choose to be able to island, becoming reliant exclusively on distributed resources.

Case Studies

Incentives exist to implement some types of distributed generation, though they can vary over time. For example, there are incentives to support the installation of onsite photovoltaic (PV) solar arrays, but they are changing. The federal investment tax credit (ITC) for PV solar dropped to 26% of capital cost this year; it drops to 22% in 2021 and further to 10% in 2022 and thereafter. 

Particularly taking into account incentives, the financial benefits of distributed generation can be quite compelling. Here is an example of a planned 2,000 kW onsite solar PV generation system. Electricity produced via solar PV creates solar renewable energy credits (SRECs), which can be (I) retired, (II) sold to electricity load serving entities (LSEs) that must comply with state renewable portfolio standards (RPS), or (III) sold to end users who wish to further green their supply. The sale of SRECs in this case generates income each year. In the first year, these SRECs are worth approximately $113,704. The initial investment cost is just over $3.6 million. However, after accounting for the federal investment tax credit (ITC); bonus depreciation; the SREC income; and the energy savings realized by generating power onsite, the actual first year cost of the project is just over $1.7 million – less than half the total price tag. The breakeven point – the time at which the project is expected to have paid for itself – is six years. Given that the lifespan of solar panels is approximately 25 years, this leaves plenty of time for significant cost savings. 

The value of onsite generation might be measured by more than just its financials, however. We also calculated that, over the estimated 25 year lifespan of the solar panels, the facility would save on carbon emissions equivalent to: more than 45 million pound of coal not burned; nearly 14,000 tons of waste recycled rather than landfilled; more than 4.6 million gallons of gasoline not consumed; or 679,763 tree seedlings grown for 10 years. This analysis indicates not only the financial upside of the project, but also the long-term carbon savings it enables.

Below are summary financial analyses related to three under development distributed generation (onsite solar PV) projects, including the project outlined above (Project A).

Project AProject BProject C
Onsite Solar2,000 kW1,700 kW2,000 kW
Year 1 Summary$$$
Initial Investment(3,644,028)(2,872,343)(3,717,150)
26% Federal ITC947,447746,809966,459
Depreciation Cash Value650,459512,713663,511
Energy Savings (year 1)205,732220,028263,612
SREC Income (year 1)113,704130,554367,507
Year 1 Cash Flow(1,726,686)(1,262,239)(1,456,061)
Financial Statistics
Breakeven6.04.82.9
After-Tax IRR13.6%18.9%32.8%
After-Tax NPV$2,210,468$2,995,331$3,898,417
Environmental Offset*
Pounds of coal not burned45,297,59038,502,95241,900,271
Tons of waste recycled, not landfilled13,98311,88612,934
Gallons of gasoline not consumed4,625,8503,931,9734,278,911
Tree seedlings grown for 10 years679,763577,799628,781
*Over 25 years, carbon savings equivalent to one of the above

When deciding whether to pursue distributed generation – whether through solar, combined heat and power, geothermal, biofuel, or others – it is crucial to work with an independent partner not only to understand the options that best fit your needs but also to identify the equipment or service providers that will most effectively implement your desired approach. Just as with competitive supply contracts for electricity and natural gas, the lowest priced option is not always the best, and it is important to understand all the fine print before making a decision. When implementing distributed generation, it is also important to ensure that you have appropriate contracts in place for supplemental electricity service or to enable the sale of excess electricity back to the grid.

We anticipate continued interest in distributed generation, not only for its potential fiscal benefits but also its potential reliability and security benefits and clean energy credentials. Please contact us if you are interested in learning more.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us. 

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Copyright 2020 by Avalon Energy® Services LLC

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For Baseload Energy with No Carbon Emissions, Look (Way) Down

By Evelyn Teel

When discussing renewable energy, the conversation often revolves around wind and solar. These are very visible energy sources – we often see solar panels in our neighborhoods or wind turbines on hilltops. However, there are many other types of renewable energy resources operating or being developed around the world. 

As we try to increase the percentage of renewable energy in the mix, it will be essential to develop technologies that balance each other’s strengths and weaknesses. One of the biggest challenges with wind and solar is their intermittent nature – they will not be able to provide dispatchable power until significant improvements have been made in energy storage technology. 

One energy resource that is available throughout the country on a constant basis is the heat  that exists in the earth’s crust. In some parts of the country, such as Northern California, high temperatures are found fairly close to the surface, and this geothermal source is used to generate electricity. Outside of the United States, Iceland has significant geothermal resources, which are used to heat 90% of their households as well as for many other uses (https://nea.is/geothermal/direct-utilization/). 

Geothermal is actually a very old source of energy for humans. We have used hot springs for warmth and healing for tens of thousands of years. More than a hundred and twenty-five years ago, the first geothermal district heating system was created in Boise, Idaho, where it heated homes and businesses. In 1904, the first geothermal power plant was developed in Tuscany, Italy (https://www.energy.gov/eere/geothermal/history-geothermal-energy-america). Recent and ongoing advances are increasing the range of locations in which geothermal energy can be accessed and used.

The temperature gradient, or rate at which temperature increases as you drill farther into the crust, is not consistent throughout the country. In some areas it is necessary to drill much farther before reaching the temperatures generally required to use geothermal energy to produce electricity. However, innovators are working to hone the techniques and technologies that will allow this renewable resource to be leveraged in more areas. This means developing the capacity to drill farther into the ground, or learning to work with lower temperature geothermal resources. If the geothermal heat is intended to be used for space or water heating, it generally does not need to be at quite as high a temperature as would be required for generating electricity. 

The graphic below, from the paper “Integrating Geothermal Energy Use into Re-building American Infrastructure” by Jeff Tester, Tim Reber, Koenraad Beckers, Maciej Lukawski, Erin Camp, Gloria Andrea Aguirre, Terry Jordan and Frank Horowitz, presented at the World Geothermal Congress 2015 (https://pangea.stanford.edu/ERE/db/WGC/papers/WGC/2015/38000.pdf), shows estimated temperatures throughout the United States at a depth of 5.5km. As you can see, by that depth (just less than 3.5 miles), much of the country is estimated to be at a temperature of at least 125 degrees Celsius, which is sufficient for space heating, water heating, and other purposes.

The logistics of an enhanced geothermal system (or one in which water is pumped into the ground to be heated) entail drilling two wells in parallel, several miles into the ground. Water is pumped into one well; once it reaches the bottom, it is warmed by the surrounding rocks. The heated water is then pumped back up the second well. Depending on the temperature, the water may be so hot that it comes out as steam that can be used to turn a turbine to generate electricity, or it may pass through a heat exchanger so that it warms another fluid that is then used to heat buildings or put to other uses.

At Cornell University, researchers are working to develop an enhanced geothermal system, also called Earth Source Heat, that could heat the campus’s buildings using (relatively) low temperatures such as are available throughout much of the country. Though further research and testing are still required, demonstrating the efficacy of such a system could open the door for further deployment of such systems around the country and the world. For more information on the work happening at Cornell, check out their website: https://earthsourceheat.cornell.edu/

Geothermal energy is often confused with applications involving ground source heat pumps. However, the two are very different. Geothermal energy involves extracting heat from the earth. Some of this heat remains from the original formation of the earth. Some is a result of the radioactive decay over millions of years of elements deep within the earth. Geothermal energy applications are large scale projects that tap into this heat source through wells drilled several miles below the surface of the earth. Ground source heat pumps, on the other hand, are much smaller applications that use the relatively constant temperature of the near subsurface of the earth (10 to 500 feet) as a heat sink for residential and small commercial heating and cooling applications.  

Moving to a renewables-based energy mix will require a variety of resources that complement one another and serve the full range of energy needs throughout the country and the world. Geothermal energy has quite a few positives, including that it can provide baseload power, it generates no carbon and basically no pollution, and the generation sites require a very small footprint. It is a great complement to the more intermittent sources of energy as well as those that are only available in limited geographic areas. This is quite an exciting time, as we witness the resurgence of old energy sources and the development of new ones. 

Interested in learning how you can benefit from today’s low energy prices? Call or email us today and we’d be happy to help you explore your options.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us

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Maryland Renewable Energy Portfolio Standard – A Lot of Change for No Action

During this year’s legislative session, the Maryland General Assembly passed the Maryland Clean Energy Jobs Act.  Maryland’s governor, Larry Hogan, then had until 30 days after the legislative session (i.e., until May 30) to sign the bill, veto the bill, or take no action.  By taking no action, the bill would automatically become law.  The governor took no action and the bill is now law. 

RPS

The new law increases Maryland’s renewable energy portfolio standard (RPS) from 25% by 2020 to 50% by 2030.  This is shown graphically below, along with Maryland’s original 2004 and 2017 RPS goals (also see Maryland RPS – Veto Override):

Solar Carve Out

The law also increases the “solar carve out” from 2.5% by 2020 to 14.5% by 2028.  This is a dramatic increase and is shown graphically below: 

The following table shows the Maryland solar carve out as a percentage of the total Maryland RPS, increasing from 10% in 2019 to about 30% in 2027 and beyond.

SRECs

Prior to the bill being passed by the Maryland legislature, Maryland renewable energy credits (SRECs) were trading at about $16 per megawatt-hour.  Upon passage of the bill, Maryland SRECs increased to about $47 per megawatt-hour.  With the bill now becoming law, Maryland SRECs have increased in value to $63 per megawatt-hour. 

Economic Value

A 45 megawatt solar project with a 15% capacity factor would generate 59,130 megawatt-hours per year:

45 megawatts x 15% CF x 8,760 hours per year = 59,130 megawatt-hours

Prior to the bill being passed by the Maryland legislature, 59,130 megawatt-hours of Maryland SRECs were worth $946,080 annually.  With the passage of the bill, this value increased to $2,779,110.  With the bill now law, the value has increased to $3,725,190.  Please note that this ignores transaction costs.

Thought of in units generally used in utility billing, these SREC values equate to an increase from 1.6 cents per kilowatt-hour to 6.3 cents per kilowatt-hour. 

This represents value to the owner of the SRECs in addition to the value received for the energy production from the solar facility. 

If the energy output of the solar project in this example is sold for 6 cents per kilowatt-hour, SRECs now add another 6.3 cents, for a total of 12.3 cents per kilowatt-hour.   

That’s a lot of change for no action. 

Note:  This Maryland legislation includes a grandfathering provision, meaning that customers who sign up for or extend their supply contracts before the grandfathering period ends are grandfathered from the additional RPS costs until the expiration of the grandfathered contracts.  This is a good time to consider extending your electricity supply contracts.  Contact us for more details.

Evelyn Teel contributed to this article.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us.

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Capacity Factor – Part 2

In our previous article we looked at Capacity Factor and how it differs between nuclear generation and solar PV (photovoltaic).   We concluded that in order to generate the same amount of electricity as 1/3 of the capacity of the US nuclear generation fleet (33,042 MW), 154,760 MW of solar PV capacity would be required.  This is a result of the substantially different Capacity Factors of nuclear (90.9%) and solar PV (19.4%) and is summarized in the table below.

A reader asked how much solar PV capacity would be needed in order for solar PV to generate as much electricity as the entire US nuclear generation fleet.  As noted in the previous article, the current US nuclear generation fleet consists of 100 operating units with a combined capacity of 99,125 MW which, during 2013, produced 789,016,510 MWh of electricity.

In order to calculate the amount of solar PV capacity needed, we can rearrange the Capacity Factor formula we used last time as follows:

Solving for the solar PV capacity needed to supply the same amount of electricity as the US nuclear generation fleet, we arrive at the following:

Capacity (MW) = 789,016,510 MWh / (19.4% x 8,760 hours/year)

Capacity (MW) = 464,280

In summary, 464,280 MW of solar PV capacity would be needed in order for solar PV to generate as much electricity as the entire US nuclear generation fleet.  This is 365,155 MW more than the existing 99,125 MW of installed nuclear capacity and is summarized in the table below:

As noted in our previous article, solar PV, like other sources of electricity generation (nuclear, wind, coal, natural gas, geothermal, biomass, etc.) comes with a set of tradeoffs.  Each source has its own strengths and weaknesses.  The focus here is simply on Capacity Factor.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at jmcdonnell@avalonenergy.us.

Notes:

Data from the US Energy Information Administration

Evelyn Teel contributed to this article.

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Capacity Factor

In a recent article in the Energy Law Journal, the authors state,

By as early as 2016, installed distributed solar PV capacity in the United States could reach thirty gigawatts (GW).  If that forecast is on track, distributed solar generation will have increased from less than one GW in 2010 to the equivalent of nearly one-third of the nuclear generating capacity in the United States in less than a decade.1

Is the comparison to “one-third of the nuclear generating capacity” meaningful?  Could the amount of solar PV (photovoltaic) generation output expected to be available as early as within two years be equivalent to one-third of today’s nuclear generation output?  The short answer to both questions is “no” and the reason is that nuclear and solar generating facilities have substantially different Capacity Factors.

What is Capacity Factor?

Capacity Factor is the ratio of the actual output of an electricity generating unit over a time period to the unit’s maximum possible output over the same time period.  This ratio expresses the extent to which a unit is, or is not, operating at full output.  A high Capacity Factor, say 80% or 90%, indicates that a generating unit is operating close to “full out,” whereas a low Capacity Factor, say 20% or 30%, indicates that a generating unit is operating well below its maximum capability.

More specifically, Capacity Factor is defined as follows:

For example, a 500 megawatt (MW) unit that generates 2,187,500 megawatt-hours (MWh) of energy during the course of a year has a Capacity Factor of 50%, calculated as follows:

Capacity Factor = 2,187,500 MWh / (500 MW x 8,760 hours/year)

Capacity Factor = 50%

Why don’t generating units operate at 100% Capacity Factor?

There are many reasons.  All operating equipment must be backed off periodically for maintenance.  Mechanical failures and accidents lead to unscheduled outages.  The individual economics of each unit lead to them being called upon more or less under grid operators’ economic dispatch models.  Wind and solar units are physically constrained by how frequently the wind blows and the sun shines.

US Nuclear Generating Fleet

The current US nuclear generation fleet consists of 100 operating units with combined capacity of 99,125 MW which, during 2013, produced 789,016,510 MWh of electricity.  The overall Capacity Factor of the nuclear generating fleet is therefore:

Capacity Factor = 789,016,510 MWh / (99,125 MW x 8,760 hours/year)

Capacity Factor = 90.9%

Analysis

The Energy Information Administration (EIA) reports that during 2013, the average Capacity Factor of solar PV in the US was 19.4%.

Over the same time period, 99,125 MW of nuclear capacity, with its 90.9% Capacity Factor, generated 789,016,510 MWh of electricity:

Going back to the opening quote, one-third of the nuclear generating capacity in the United States” is 33,042 MW, which was responsible for 263,005,503 MWh of electricity:

Given Solar PV’s much lower Capacity Factor, 33,042 MW of solar PV capacity would generate only 56,152,330 MWh of electricity, or 206,853,173 MWh (78%) less than the output of the same amount of nuclear capacity:

In order to generate an equivalent amount of electricity as 33,042 MW of nuclear capacity, substantially more solar PV capacity would be required:

In other words, in addition to the 33,042 MW of solar PV capacity projected to be online by as early as 2016, another 121,718 MW of solar PV would be required in order to generate the same amount of electricity as 1/3 the output of the nuclear generation fleet:

Is the amount of solar generation expected to come online in a decade equivalent to one-third of today’s nuclear generation capacity?  No, and the reason is that nuclear and solar generating facilities have substantially different Capacity Factors, 90.9% versus 19.4%, respectively.

This is a challenge solar PV faces.   The nuclear industry increased its capacity factor from 50% during the 1950s to what it is today through operational improvements.  The capacity factors of coal and natural gas units vary based on their individual economics and their dispatch merit.  Solar PV is bounded by the physical limits of when the sun shines.

The purpose of this article is to take a recent quote and use it as an opportunity to explain Capacity Factor.  Solar PV, like other sources of electricity generation (nuclear, wind, coal, natural gas, geothermal, biomass, etc.) comes with a set of tradeoffs.  Each source has its own strengths and weaknesses.  The article is meant simply to look at Capacity Factor.  Other tradeoffs will be the subject of future articles.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at jmcdonnell@avalonenergy.us.

Notes: 

1Elisabeth Graffy and Steven Kihm, Does Disruptive Competition Mean a Death Spiral for Electric Utilities?, Energy Law Journal, Volume 35, No, 1, 2014.

Data from the US Energy Information Administration.

Evelyn Teel contributed to this article.

Please feel free to share this article.  If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

Copyright 2014 by Avalon Energy® Services LLC