The notion that entire communities and countries could be completely powered by renewable energy still seems like a pipe dream to many.  Not to those gathered at the first Pathways to 100% Renewable Energy conference in San Francisco earlier this month. To them, a fully renewable power system is not only achievable, but makes economic sense.  And it’s already being accomplished in some places.

Organized by the 100% Renewable Energy Institute, based in Santa Monica, California, the gathering had its fair share of grassroots environmentalists, but it was peppered with esteemed scientists, eco-celebs (such as Frances Moore Lappe), and government officials (San Francisco mayor Edward Lee).  Several representatives from the California Independent System Operator (CAISO) were there as well, discussing the variety of smart grid tools – including demand response – necessary to wean large power grids off of fossil fuels that currently burned to balance the variability of wind and solar.

While Denmark is one of the few countries committed to a 100% renewable energy goal for electricity, heat, and transportation, some local governments have already reached the 100% renewable threshold.  Perhaps the most inspiring example is Rhein-Hunsruck in southern Germany, a district of roughly 100,000 inhabitants that will produce more than 100% of its own needs from solar, wind, and biomass this year.  By 2014, this rural district will be providing 236% of its own energy needs from renewables and hopes to generate significant revenue by exporting excess carbon-free power to the open market.  Rhein-Hunsruck has combined aggressive energy efficiency programs, which reduced the district’s overall electricity loads by 25%, with a shift to local and regional power generation from renewables, according to Bertram Fleck, chief administrative officer for the district.

Transition Costs

In the United States, the town of Greensburg, Kansas (pop. 781) is powered completely by wind power.  It also boasts the highest per capita LEED platinum green buildings in the United States, highlighting the synergy between energy efficiency and renewable energy to get to the 100% carbon-free energy nirvana.

Despite these victories, there are skeptics. Among them is Peter Lilienthal of HOMER Energy, a leading source for software to design microgrids in the developing world.  While he notes that solar photovoltaic (PV) power is now cheaper than diesel fuel, the cost of shifting over entire islands or other remote microgrids to 100% renewable energy is – in Lilienthal’s view – too high and unnecessary.  Of course, the beauty of these modular microgrids is that they can green up over time, incorporating a variety of different fuels and technologies.

Still, Michael Jacobson of Stanford University continues to pump out studies mapping out specific portfolios of different wind, water, and sun (WWS) resources that could power entire states such as California or New York, and do not, according to his calculations, bust the bank.  A newly released report from the Civil Society Institute also concludes increased reliance upon renewables will not reduce grid reliability, as is so often feared.

Wind, Water, & Sun (& Energy Efficiency) to Meet 100% Demand by 2050

(Source: Stanford University)

At the conference, I gave a presentation on microgrids and virtual power plants,  two aggregation and optimization platforms that not only enable high penetrations of renewables, but will also be necessary for countries such as Germany and Denmark to meet their aggressive carbon reduction goals.  Without such power grid innovations, shifting to a carbon-free energy future would be impossible.

A good first step in this green energy transformation would be to scale back what the Earth Policy Institute has estimated is $620 billion in government subsidies now flowing toward fossil fuel development.  Eliminate those subsidies, level the playing field in energy markets, and the world suddenly looks like a different place.

A “pay as you go” strategy for critical infrastructure, such as power supply – wherein infrastructure is financed incrementally, during the construction process – could make sense when applied to small remote microgrids supplying small solar systems in the developing world.   End-users in these countries often earn subsistence wages and need only enough juice for lights, computers, and cell phones.

When applied to nuclear power, though, the pay as you go concept dramatically increases the risks to end-users.   Just ask residents of Florida, where ratepayers are discovering that utilities can actually make more money – and consumers pay more for electricity – the longer it takes to build nuclear power stations.  The culprit is something called “construction work in progress,” or CWIP.

The Nuclear Energy Institute (NEI) has made a convincing argument that CWIP should actually save consumers money.  By collecting funds from ratepayers in advance of actual power production, sudden rate shocks can be avoided.  Financing costs for such large infrastructure projects can be reduced under CWIP, since investors have more certainty that debts will be paid off.  Since the investment ratings of utilities are protected, borrowing costs also shrink.

In the case of a proposed nuclear reactor by Progress Energy in Levy County, Florida, NEI estimated that CWIP program financing would save consumers $13 billion over the life of these nuclear reactors.  When Florida passed a bill in 2009 authorizing CWIP, it sailed through the state legislature with only a single dissenting vote.

After 6 years of CWIP financing, residential customer bills in Florida are projected to increase by $50 a month this year, even before the nuclear reactors generate a single kilowatt-hour of electricity.  Progress Energy originally estimated that building the two unit reactors would cost $5 billion and would be generating carbon-free power by 2016.  Instead, the construction costs have ballooned to $22.4 billion, and the plant – if ever completed – will not be generating power until 2021.

Ironically, this revised price tag and construction schedule mean that Progress Energy will generate more – not less – revenue the longer it takes to build the nuclear reactor.  If the project were cancelled today, the utility would still walk away with $150 million in profit.  So far, ratepayers have committed to over $1 billion dollars for a nuclear plant that won’t produce any power  for almost a decade.

If nuclear power could be financed in a way that makes economic sense, then proceeding down that path might make sense.  “Distributed nukes” – which would be deployed at a much smaller scale, reducing large investment risks – could be a better fit for CWIP and provide the form of financial innovation that might lead to a nuclear renaissance.  (Both water and transmission facilities have deployed CWIP with little controversy).  Unfortunately, the experience in Florida is turning former nuclear advocates and supporters of CWIP into skeptics, though the practice still has its defenders.

All eyes are on Florida to see if and when the plug is pulled on CWIP for large-scale nuclear power plants, with Republican state representative Mike Fasano, who voted for the CWIP state legislation in 2009 and supports nuclear power, leading the charge to shift financial risks away from ratepayers and to utility shareholders with new state legislation.

Connecticut boasts the nation’s first law promoting the creation of microgrids.  But that small state is focused on microgrids that would run on fossil fuels, providing fuel cell companies with new markets for their products.  In California, the primary drivers for microgrids are aggressive plans for renewable energy deployment, both at the wholesale level and at the distribution level.  As a result, two of the state’s investor-owned utilities (Southern California Edison and San Diego Gas & Electric) view microgrids as a potential remedy for a future power grid that could be much less robust than today’s – one that is highly susceptible to swings in solar and wind power production and corresponding voltage spikes and sags.

The Microgrid World Forum, which took place in Irvine, California, provided further evidence that the Golden State may soon emerge as the hottest market for this technology platform in the United States and perhaps the world.  Bob Foster, chair of the California Independent System Operator (CAISO), which manages the state’s high-voltage power grid, noted that “microgrids are the answer” to the following challenges facing the world’s 9^th largest economy:

• A state Renewable Portfolio Standard (RPS) that requires 33% of the state’s total electricity comes from large-scale renewable resources by 2020
• Regulations forcing the retirement of “once through cooling” fossil plants that pepper California’s 840-mile-long coast and that could help integrate variable renewables
• The nation’s highest per capita deployment of distributed solar photovoltaic (PV) systems (in San Diego)

California is also expected to lead the United States in deployments of electric vehicles (EVs), with as many as 200,000 on the road by 2020 – each representing the equivalent load of one and half homes.

Consumer Benefits

As a new report entitled Market Data: Microgrids from Navigant Research points out, North America is expected to lead the global market for microgrids over the next 7 years.  Already, California hosts many leading microgrids in the region, including the ones at the University of California-San Diego and the University of California-Irvine.

Total Microgrid Revenue by Region, Average Scenario, World Markets: 2013-2020       

(Source: Navigant Research)

A former executive at Southern California Edison (SCE), Foster stated that, “Consumers must benefit financially from reducing their energy costs.  We want to meter everything, that’s the goal, and have state ratepayers pay as they consume.  If they don’t go down that path, utilities as we know them are dinosaurs.”  Unfortunately, microgrids face challenges in California that include strong resistance to dynamic pricing from the California Public Utilities Commission (CPUC), just one testament to an opaque state regulatory process.  California has four major state entities governing energy, and they often conflict over the best way to achieve aggressive policy goals.

Foster acknowledged that it may take another decade for the regulations to align for microgrids.   “Today’s California wind fleet often generates at peak capacity at 1 a.m. in the morning,” he pointed out.  “These facilities and sometimes get paid not to generate!”  Nevertheless, by 2020, he forecasts that the state’s EV fleet will be soaking up this clean capacity, and early investments in renewable and transmission capacity will start to pay off.  In the end, Foster concluded, what California’s microgrids need  is an innovative financial model for microgrids – “something similar to what the solar lease model did for solar PV.”

Duke Energy’s decision to close the Crystal River nuclear reactor, following on the heels of announced closures for Dominion Energy Resources’ Kewaunee nuclear reactor in Wisconsin and Exelon’s Oyster Creek plant in New Jersey, raises some intriguing questions about efforts to combat climate change.  The list of nuclear shutdowns is likely to grow.

This shift away from nuclear in the United States  is seen by many as a boon to natural gas.  Although natural gas has been touted as a “bridging fuel” to a renewable energy future, and as a flexible resource capable of filling in the gaps when the sun doesn’t shine and the wind doesn’t blow, scientists are discovering that a growing reliance upon natural gas could actually be accelerating global climate change.

How? While burning natural gas is cleaner than coal, leaks of methane – which is more than 20 times more threatening to our climate than carbon dioxide – are far more prevalent than previously realized.  And while fracking has been viewed as a godsend, giving rise to a revived U.S. petroleum industry, there is a growing movement to tighten regulations of the controversial shale gas extraction method due to water quality concerns.  If leakage rates into the atmosphere stick to about 3%, the net benefit of natural gas to the climate is a net positive.  Anything higher and the reverse is true; recent samplings suggest in Utah suggested leakage of 9%.  Even among utilities, there is growing concern about over reliance upon natural gas.

Japan Reverses Course

The challenges facing nuclear power mirror those of increasing renewable sources.  They include high up-front capital costs and reliance upon government subsidies. Once externalities are factored in, I believe wind power will be the ultimate winner among carbon free power sources. Evidence supporting this prediction comes from markets such as Australia, where wind power is now cheaper than natural gas or coal, thanks to a recently imposed carbon tax.

Despite the gloom and doom facing the nuclear industry, a ray of hope has emerged for this purported solution to climate change in, of all places, Japan, site of the world’s greatest nuclear mishap.  Almost 2 years after the triple meltdown at Fukushima Daiichi power plant, Japan‘s government is reversing course.  Japan appeared to have ended its heavy commitment to nuclear power when the previous center-left government pledged last year to phase out all of the country’s 50 working reactors by 2040.  The return to office of the conservative government under Shinzo Abe is giving the nuclear industry a second chance.