Navigant Research Blog

Will Coal Plant Retirements and Fracking Threaten Electric Reliability?

— December 17, 2014

The implications of the rapid retirement of much of the U.S. coal generation fleet are just coming to light, and transmission operators and generation utilities are actively discussing and planning on contingencies that could cause a real threat to reliability and availability in many regions across the nation.  (The issues around retiring and decommissioning coal plants were discussed in Navigant Research’s research brief, Coal Plant Decommissioning.)  Compounding the threat of coal generation plant retirements is a short-term shortage of coal in many regions of the nation.

The U.S. Environmental Protection Agency (EPA) announced its proposed Clean Power Plan (CPP) rule in June 2014.  It’s expected that the final rule will be announced in June 2015.  The CPP targets CO2 emissions by existing fossil-fueled electric generation and sets targeted reductions for each state.  The plan, as currently proposed, mandates 30% reductions in carbon emissions by 2030 from 2005 levels.

The proposed plan also gives each state flexibility to develop its own approach as to how it will meet the targets, including retiring problematic coal and other fossil fuel generation, adding renewables, such as wind or solar generation, or increasing levels of demand response and energy efficiency programs, which the recent EPA mandates may accelerate.

Time to Plan

Most people do not understand the issues that will arise in the Midwest and the southeastern United States as a result of coal generation plant retirements.  The North American Electric Reliability Corporation (NERC) discusses the implications at length in a recent paper on the impact of generation plant retirements based on the CPP.  NERC concludes the paper by suggesting that states immediately start operational and planning scenario studies, addressing resource adequacy, transmission adequacy, dynamic stability, and  economic and reliability impacts.  This must be done to demonstrate reliability and to ensure that plans of action are technically achievable within the stated time requirements.  “States that largely rely on fossil-fuel resources might need to make significant changes to their power systems to meet the EPA’s target for carbon reductions while maintaining system reliability,” the NERC authors conclude.

Supplies Down

In the near term, another related reliability threat is looming: the availability of coal to fuel the generation plants operating today.  Having formed a new trade group called the Western Coal Traffic League, Midwestern utilities are frustrated because their normal coal supplies from western U.S. coal producers have kept utilities from rebuilding stockpiles burned during last year’s cold winter. Compounding the effect, record harvests, economic growth, and growing oil shipments from the country’s booming oil fracking industry in in the upper Midwest are constraining the rail system.

The effective implementation of the CPP, along with tight supplies of coal, will make for an interesting winter in many parts of the United States.

 

Alaska Leads the World in Microgrid Deployments

— December 17, 2014

Many utilities view microgrids as a threat, due to intentional islanding and/or the effects of reduced customer load on long-term revenue projections.  However, a small but growing number of utilities view the microgrids they own and operate – known as utility distribution microgrids (UDMs) – as the next logical extension of their efforts to deploy smart grid technology.  As I’ve noted earlier, the developed world can learn interesting lessons in this field from the developing world.

Navigant Research’s new report, Utility Distribution Microgrids, shows that the total UDM market represents over $2.4 billion of economic activity today, with the bulk of this investment flowing into projects located in the Asia Pacific region.  As noted in an earlier report, Microgrids, North America is the overall market leader.  Yet, when it comes to utilities, both Asia Pacific and Europe are ahead in near-term deployments and related implementation revenues.  All told, under the base scenario, Navigant Research expects the UDM market to reach $5.8 billion in annual revenue by 2023, growing at a compound annual rate (CAGR) of 10.2%.

However, there’s one important exception to this market generalization: Alaska.

Across the Tundra

“Over the last decade, Alaska has quietly emerged as a global leader in the development and operation of microgrids,” declared Gwen Holdmann, director of the Alaska Center for Energy and Power at the University of Alaska Fairbanks, in a recent interview.  A particular focus has been hybrid conventional-renewable-storage systems, networks that have “logged more than 2 million hours of continuous operating experience for these types of systems,” according to Holdmann.  The state boasts a portfolio of somewhere between 200 and 250 permanently islanded microgrids ranging from 30 kW – about the size of a city block – to large remote hydro systems over 100 MW in size.  These microgrids, many in operation for over 50 years, provide electric power service exclusively to isolated rural populations.  Total capacity exceeds 800 MW, the largest installed base of microgrids in the world today (though China may overtake Alaska by the end of next year).

Holdmann clearly takes pride in what Alaska has accomplished with these scattered, isolated hybrid power systems, which tap fuels as diverse as wind, solar, hydro, biomass, and tidal currents, along with diesel.  While other pundits may point to New York, California, or Hawaii as the centers of North American microgrid development, Alaska has been developing cutting-edge microgrids for quite some time.  “The State of Alaska alone has invested over $250 million in developing and integrating renewable energy projects to serve these microgrids, – far more per capita than any other state in the country,” Holdmann said.

Integration Experts

The advent of advanced technology deployment to these rural systems has forced Alaska utilities and developers to become expert in microgrid development and operation.  By far the greatest challenge was, and remains, the high-penetration integration of intermittent renewables, such as solar, wind, and hydrokinetic, with traditional diesel or natural gas fueled electric power generation.  Nevertheless, Alaskans have repeatedly achieved higher renewable penetration levels than nearly any other place in the world, under incredibly harsh conditions, including daylight hours that shrink to a couple hours a day in the winter and winds that can exceed 100 miles an hour – enough to literally tear apart many conventional wind turbines not designed to stand up to such speeds.

Many Alaskan utilities have set up voluntary goals to reach 70% or 80% renewable penetration within the next 8 to 10 years.  Kodiak Electric Association, which serves Kodiak Island on the southern coast of Alaska, reports that it has achieved 99.7% renewable energy penetration so far in 2014, using a hybrid wind/hydro/diesel/battery/flywheel microgrid.

Mainland U.S. utilities could learn a lot from the innovators up north, where the smart grid is already delivering on the promise of a more cost effective and sustainable power grid today.

 

‘Costly’ Amtrak Payments Dwarfed by Parking Largesse

— December 16, 2014

Rail service company Amtrak posted its annual financial report on November 25, and progress was reported all around.  Revenue ($3.2 billion) and ridership (31.6 million passengers) are up over the previous year, and the operating loss of $227 million was the lowest since way back in 1973.  However, the loss would have been much greater if not for payments from states and the federal government, which pony up nearly $2 billion annually to support infrastructure upgrades and other costs.

Amtrak is profitable in the Northeast, where it is viewed as indispensable for commuting along the I-95 corridor from Boston to Washington, D.C., but runs far in the red elsewhere, especially on long-distance routes.  For fiscal year 2015, Amtrak has requested a federal grant of $1.6 billion, and the number gets higher each year to counter the tunnels, bridges, and tracks that continue to fall into disrepair.

No Free Parking

Perpetually deficit-running Amtrak is a favorite target for fiscal conservatives, such as Mitt Romney, who frequently spoke of defunding the service during the 2012 presidential election.  However, the federal government is actually funding the parking of private vehicles at a much higher level.  According to a new report by the TransitCenter and the Frontier Group, employers providing tax-free parking allowances costs the federal government $7.3 billion annually in lost revenue.

The Internal Revenue Service’s (IRS’s) tax code allows parking allowances of up to $250 per month sans taxes, which is nearly twice the amount allowable for taking public transit ($130), and more than 10 times the allowance for bicycle commuters ($20).  The study claims that the tax abatement adds approximately 820,000 commuters who would otherwise find other means of getting to work, including motorists who increase use of roads, another hidden cost to taxpayers.

The True Costs

According to Streetsblog.org, Congress is violating the IRS maximum parking allowance by providing free street parking to staffers in pricey downtown D.C.  So we have CAFE regulations aimed at reducing transportation emissions by requiring carmakers to invest billions to produce increasingly fuel efficient vehicles, while at the same time, we subsidize the use of private vehicles in congested urban areas at a cost more than 3 times the total spent to support Amtrak.  Taken together, these policies can be viewed as somewhere between inconsistent and outright contradictory.

 

The Dutch Blaze an EV Trail

— November 12, 2014

With the most recent alarming report on climate change from the Intergovernmental Panel on Climate Change (IPCC), governments are once again faced with the question of how to develop policies to address the climate crisis.  The IPCC says that the unrestricted use of fossil fuels must be phased out by 2100.  For some governments, like in the United States, the challenge lies in just getting the public to agree there is a problem.  But even in the European Union (EU), where there is broad consensus on the need for action, it can be challenging to convert this into policies that will successfully drive down greenhouse gas emissions.

One challenge is setting appropriate and achievable targets based on clear-headed analysis, not wishful thinking.  Another challenge is then devising the right mix of carrots and sticks to allow the goal to be met.

The Right Place

The Netherlands’ electromobility initiative is one example of how to develop and implement an environmental policy effectively.  I recently had the chance to talk with a delegation from the Netherlands about the country’s push to promote plug-in vehicle (PEV) adoption and its successes to date.  The first and most critical step was recognizing that the country had the right conditions for PEV adoption.  The Netherlands is a small country, densely populated and highly urbanized.   The Dutch tend to be environmentally conscious already, and the country has an extensive and stable grid network (fueled mostly by fossil fuels but with around 15% renewables).  The country also has some of the highest gas prices in Western Europe, thanks in part to the highest fuel tax in the EU.

Given these conditions, the government’s belief that PEVs could find success was well-founded.  The government has set a goal of having 200,000 PEVs in the Netherlands by 2020.  According to Navigant Research’s report, Electric Vehicle Market Forecasts, total light duty vehicle (LDV) parc (i.e., vehicles in use) in the country will be 8.6 million in 2020.  Two hundred thousand PEVs would be 2.3% of the total vehicles on the road.  That may seem small, but it’s actually an aggressive target, requiring PEVs to average more than 5% of annual LDV sales over the next 6 years.   According to Navigant Research’s PEV forecasts, only Norway, Estonia, and the Netherlands have broken 1% annual PEV sales as of 2014.

Tax Relief

The Dutch government offers significant tax incentives for PEV purchases, PEV leasing, and EV charging equipment installation.  The PEV purchase tax rebate amounts to around €7,000 to €10,000 ($8,700-$12,500).  Perhaps more important, however, is the income tax relief on private use of a company car.  A significant number of cars in use in the Netherlands are company cars or cars leased for company use.  PEVs were exempt from the income tax, saving drivers as much as $5,000 annually.

At the same time, the Dutch government provides incentives for EV charging station deployment, for public and workplace use especially.  As of October 2014, there were more than 9,500 public charging points in the Netherlands.  The effort to roll out infrastructure is supported by Dutch energy and grid companies.

The policies have worked: as of 2014, annual PEV sales in the Netherlands amount to 4% of total LDV sales, and there are a total of more than 32,000 PEVs on Dutch roads.  Moreover, Navigant Research forecasts that the country will actually reach the 200,000 PEV goal by 2019, a year early.

The next phase for the electromobility initiative will see it moving beyond the early PEV adopter phase and promoting further EV charging station workplace and public deployments.  The country’s next target – 1 million PEVs by 2025 – will be a challenge to reach.  But the Dutch have proven that progressive policies can truly shift the vehicle market.

 

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