Navigant Research Blog

In the Islands, Renewable Energy Scales up Rapidly

— July 22, 2014

Renewable energy project developers are touring islands these days, salivating at the opportunity to displace diesel-powered electricity systems that can cost as much as $1/kWh with significantly lower-cost clean power.  Prominent examples include Iceland, where, according to the country’s National Energy Authority, roughly 84% of primary energy use comes from indigenous renewable energy sources (the majority from geothermal); Hawaii, where energy costs are 10% of the state’s GDP, and where the state government has set a goal of reaching 70% clean energy by 2030; and Scotland (part of a larger island), with a goal of 100% renewable energy by 2020.  Several smaller, equally interesting island electrification initiatives present great opportunities for companies looking for renewable energy deployment opportunities that are truly cost-effective for customers and developers.

These opportunities include:

  • In Equatorial Guinea, a 5 MW solar microgrid planned for Annobon, an island with 5,000 inhabitants off the west coast of Africa, is intended to supply 100% of the power for residential needs.  The project is funded by the national government with power produced at a rate 30% cheaper than diesel, the current primary fuel source.  The project is scheduled for completion in 2015 and is being installed through a partnership between Princeton Power Systems, GE Power & Water, and MAECI Solar.
  • The Danish island of Samsø is the first net zero carbon island, where 34 MW of wind power generate more electricity than is consumed on the island.  Fossil fuels are still utilized, so  Samsø is not truly a 100% renewable energy island as often reported.  The project was conceived and designed as part of a 10-year process begun in 1997, following the Kyoto climate meeting in Japan.
  • The island of Tokelau, an atoll in the South Pacific, is home to 1,500 inhabitants and produces up to 150% of its electrical needs with solar PV, coconut biofuel-powered generators, and battery storage – displacing 2,000 barrels of diesel per year and $1 million in fuel costs.
  • El Hierro, the westernmost of Spain’s Canary Islands, is home to 10,000 residents.  With an innovative combination of wind power and pumped hydro acting in tandem, the island is projected to generate up to 3 times its basic energy needs.  Excess power will be used to desalinate water at the island’s three desalination plants, delivering 3 million gallons of fresh water per day.
  • The Clinton Global Initiative has a specific Diesel Replacement Program for islands, focused on deploying renewable energy projects and strategies tailored to the unique needs of its 20 island government partners.  The objective is not only to create cost-effective solutions to reduce carbon, but also to help many of these island nations reduce the often enormous debt that results from relying on imported diesel fuel for electricity.

There are many more opportunities, including Crete, Madeira, Bonaire, La Reunion, the U.S Virgin Islands, and the Philippines (7,127 islands) – which last summer set a 100% renewable energy target within 10 years.

Not all of these projects, particularly the more sophisticated ones, have gone smoothly.  The logistical challenges of island construction add to the overall cost of the projects.  The risk of extreme tropical weather events is always present, including the risk of actually being underwater if sea levels rise as anticipated.  Thus far, financing for many of these projects has come from public-private partnerships, and as I’ve written previously, the coming avalanche of adaptation funding means those avenues are expected to be around for the foreseeable future.  But given the strong economic arguments for residential systems, resorts, agriculture, and other energy-intensive applications that often rely on diesel power for electricity, onsite distributed projects often pencil out without public assistance.

 

Amid Global Turmoil, Oil Prices Oddly Stable

— July 18, 2014

The world has entered a zone of maximum upheaval.  From the Atlas Mountains of North Africa to the Hindu Kush, in Afghanistan, the Middle East is in flames.  The destruction of a Malaysian airline over Ukraine, almost certainly shot down by Russian-backed separatist rebels, threatens war in the Black Sea region.  Libya is being torn apart by competing militias, while parts of Iraq are under assault by the murderous Islamist force known as ISIS.  Syria remains a bloody horror show, and Israeli troops have launched a ground invasion of Gaza.  At no time since the terror attacks of 2001 has the world seen such conflict and instability.

So why aren’t oil prices higher?

Prices spiked briefly after the news on July 17 that Malaysian Air flight 17, en route from Amsterdam to Kuala Lumpur, was shot down by a surface-to-air missile fired from eastern Ukraine.  U.S. oil futures rose $1.99 a barrel, up 2% on the New York Mercantile Exchange, to reach nearly $104.  That was the largest one-day jump since June 12, when ISIS launched its offensive in Iraq, according to The Wall Street Journal.  But markets quickly calmed: the next day, benchmark crude had retreated below $103 a barrel on the NYME.  The shocks of recent days had caused a tremor across world petroleum markets, not a tsunami.

No Lost Sleep

“At any given point of time, global financial markets are always at risk from geopolitical disturbances, but this time around nobody’s losing sleep over it,”  wrote Malini  Bhupta in the  Business Standard, India’s leading economic newspaper, in a column headlined “Markets shrug off geopolitical risks as oil prices remain stable.”

Before the latest outrage in Ukraine, oil prices had actually been easing: in mid-July U.S. crude fell below $100 a barrel for the first time since May.  That’s not to say that prices aren’t high; as Steve LeVine, of Quartz, points out, geopolitical disturbances have removed around 3.5 million barrels of oil a day from world markets since last fall, and if the world were a more stable and peaceful place, oil prices would likely be well below $100 a barrel.  But given the current unrest, a price per barrel of $125, or higher, would not be startling.

The ability of the market to absorb multiple shocks and keep prices relatively stable is an indication of structural changes that have taken place in recent years.

Awash in Conflict, and Oil

According to Liam Denning, writing in The Wall Street Journal’s “Heard on the Street” column, the “forward curve” – the price of oil scheduled for delivery months or years in the future, based on the trade in futures contracts – has flipped in recent weeks, meaning that prices for contracts nearer in time are now lower than those further out.  When the curve slopes upward like that, it’s an indication that supplies are plentiful.  “The global oil market no longer looks quite so panicked about Iraq,” commented Denning.

More broadly, the world’s supply of oil has been climbing for years, and continues to do so despite the current crises.  What’s more, the sources of that supply have diversified; the Middle East no longer has as a dominant role in world production as it did 10 or even 5 years ago.

Defying “peak oil” predictions, world crude production increased roughly 50% over the last 30 years, rising from about 50 million barrels a day in 1983 to 76 million in 2012.  Regions that were negligible producers before the turn of the century are now significant oil suppliers: Africa’s production has doubled since 1983, as has South America’s.  Despite the current civil war, oil production in Iraq has soared, growing from about 300,000 barrels a day in 1991 to 3 million in 2012.  Driven by new drilling in the tar sands, Canada has more than doubled its production in the last 20 years.

And then, of course, there’s the United States, which in 2011 became a net exporter of petroleum products for the first time since the post-World War II era.  In  short, the world is awash in petroleum, and barring an all-out war between Putin’s Russia and the West, is likely to remain that way for some time.

 

Wind Energy Innovation: Vortex Generators

— July 15, 2014

The wind energy industry has doggedly pursued higher energy yields and lower costs of energy with each successive generation of wind turbines.  As a result, the wind energy industry has lowered its costs by over 40% in just the past 4 years.  Innovations in wind turbine design, materials, and the sub-component supply chain are continually yielding advances – sometimes from the smallest places.

The mature aerospace industry has provided many complementary solutions to the wind industry in terms of design, materials, manufacturing, and the operation of large rotors.  Among these is the relatively recent introduction of vortex generators (VGs).  These small, simple fins, usually less than 8 centimeters tall and wide, energize airflow directionally around a blade when applied in multiples and keep it from erratically scattering as it passes over the blade surface.

The image below, from LM Windpower, the largest global independent blade manufacturer, shows the difference in airflow over a blade during recent testing.  The benefits are most pronounced close to the thickest section of the blade, near the blade root.

(Source: LM Windpower)

Lower Speed, More Energy

Lessons learned long ago in aviation show that planes with wings equipped with VGs are able to reach slower speeds before stalling out, as the VGs helped increase lift on the wings.  Wind blades operate similarly to aircraft wings, in that wings capture passing wind to create loft for flight, and blades capture passing wind as loft for mechanical turning power of the rotor.  The effects proven in aviation are also more pronounced at lower air speeds, when wing flap angles are more aggressively angled toward the passing wind.

Similarly, the effects of VGs appear to increase the productivity of a wind turbine more during medium and low wind speeds versus high wind speed environments.  This is complementary to the fact that, in recent years, the majority of new turbines installed in the mature markets of North America and Europe are designed for lower wind speed environments.

No wind blades presently are manufactured with VGs attached out of the factory, but a robust retrofit business has evolved among some independent service providers (ISPs) to install VGs during blade maintenance and inspection.

UpWind Solutions, an ISP based in North America, says it has installed 22,000 VGs across multiple wind turbine models and found that assumptions around a General Electric (GE) 1.5 MW turbine, with a power purchase agreement of $50/MWh and operating at a 40% annual capacity factor, would see an increase in annual energy production (AEP) of around 2.2% and recoup the cost of VG installation in 20 months.

From the Factory, Soon

Siemens has discovered the value of VGs and other aerodynamic add-ons and has incorporated these into aftermarket power curve upgrade services, similar to UpWind’s applications.  In early 2014, Siemens added VGs as a retrofit upgrade to the existing 175 wind turbines at the 630 MW London Array offshore wind project.  Siemens says the aerodynamic upgrades will yield about a 1.5% increase in AEP.

Independent blade manufacturer LM Windpower also offers VGs as an add-on service to blades.  With ISPs, turbine vendors and blade manufacturers offering VGs as add-on aftermarket services, it’s only a matter of time before vendors begin offering VGs with their standard blade offerings.

After all, they are already standard offerings on your average mallard duck.

 

To Win, Utilities Must Play Offense as well as Defense

— July 10, 2014

Since I’m originally from the Netherlands and spent several years living in Brazil, the semifinal results of this week’s World Cup soccer (or football, as we Europeans call it) matches have been disappointing, to say the least.  One thing that’s clear from the tournament ‑ one of the most exciting World Cups in my memory, by the way ‑ is that to succeed at this level, teams must play well on both ends of the field: offense and defense.  The Netherlands squad, the Orange, played superb defense on Argentinean superstar Lionel Messi, but failed to muster a goal in 120 minutes of regular and extra time and lost on penalty kicks.  As for Brazil, it played neither offense nor defense.

The same is true for utilities in today’s rapidly transforming power sector.  Playing defense – by sticking with established ways of operating and traditional forms of customer service – is no longer enough to succeed.  Utilities must also play offense; they must proactively develop new capabilities and innovative business models to thrive in a world of proliferating distributed energy resources (DER), greater customer choice, and rising competition from new players.

A Shifting Landscape

Widespread coal plant retirements, stiff renewable portfolio standards in many U.S. states, and the spread of renewable generation are all irrevocably changing the mix of generation assets while increasing the need for load balancing and frequency regulation on the grid.  Navigant forecasts that cumulative solar capacity in the United States will reach nearly 70,000 MW – 60% of it distributed – by the end of 2020.

At the same time, the U.S. Environmental Protection Agency’s (EPA’s) proposed limits on CO2 emissions from existing power plants will drive further changes in the generation landscape.  These limits will bring new natural gas capacity online, put upward pressure on wholesale electricity prices, and make demand response and energy efficiency programs key parts of the answer.

(Source: Navigant Consulting)

Today’s centralized, one-way power system is quickly evolving into an energy cloud in which DER support multiple inputs and users, energy and information flows two ways across the system, and market structures and transactions grow more complex.  The energy cloud is more flexible, dynamic, and resilient than the traditional power grid, but it also brings new challenges to a power sector that until recently has changed little in its fundamental structure for almost a century.

Lead or Lose

Facing declining revenue as customers consume less and produce more of their own power, utilities are faced with large investments to build new transmission capacity, upgrade distribution systems, and invest in new DER businesses.  Given these challenges, utilities must be adept at playing offense and defense.  An updated defensive strategy will entail:

  • Engaging with customers and regulators to understand customer choices vis-à-vis price and reliability
  • Improving customer service and grid reliability at the lowest prices possible
  • Finding equitable ways to charge net metering customers for transmission and distribution services
  • Developing utility-owned renewable assets to appeal to environmentally conscious customers

Playing offense is even more important.  Utilities must:

  • Create new revenue streams through the development of new business models, products, and services
  • Transform their organizations and culture in order to fully integrate sales, customer service, and operations
  • Upgrade the grid and operations to facilitate the integration of DER

These objectives can only be accomplished by implementing new business models that include developing, owning, and operating DER such as rooftop solar, customer-sited storage, and home energy management systems; providing third-party financing for DER; and offering new products and services focused on energy efficiency and demand response.

There is no going back to the old ways of doing business.  Utilities must lead – by playing both offense and defense – or they run the risk of being out of the competition.

 

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