Navigant Research Blog

United Kingdom Throws a FIT over Solar

— November 5, 2013

In two recent blogs, I discussed the fervent debate taking place in the United States over the efforts of some utilities to change their net metering policies in ways that critics call a “tax” on solar, and provided details on how Germany’s aggressive promotion of renewables has resulted in dire financial consequences for German utilities and high rates for consumers.  Now, on to the United Kingdom, where sharp changes to the Feed-In Tariff (FIT) program during just 3 years have placed considerable stress on the marketplace.

The FIT went into effect in April 2010, offering 43.3 pence ($0.69) per kilowatt-hour (kWh) to individuals generating solar energy with less than 5 megawatts (MW) of capacity.  (Notably, those who had installed solar panels prior to the FIT program were ineligible, and continue, to this day, to receive just 9 pence per kWh.)  The new generation tariff was paid whether the homeowner used the electricity or not, and an additional 3.2 pence per kWh was paid for energy exported back to the grid (the export tariff).  The costs of the program are paid by the utilities, which spread them across the entire customer base for recovery.

Falling FIT

By late 2011, it was clear that solar take-up rates were greatly exceeding the plan’s original expectations, and the Department of Energy and Climate Change (DECC) announced that it would cut generation tariffs by more than half, to 21 pence.  Lawsuits ensued, but by March of the following year, the cut was made.  Further cuts came in August of 2012, bringing the base rate down to 16 pence; and in the time since, the Office of Gas and Electricity Markets (Ofgem) has periodically lowered payments by a predetermined (and complicated) degression formula based on the rate of PV system deployment and the actual costs of solar panels.  As a consolation for the falling generation tariff, solar owners now receive 4.5 pence for exported kWh, rather than 3.2 pence – but the lower generation tariff is only good for 20 years, rather than for 25 years under the original scheme.

Rates Up, Installations Down

Partly as a result of the volatile policies, U.K. solar installations have slowed dramatically.  According to Ofgem data, nearly 470,000 small PV systems have been installed through the program.  But in the June, the monthly installment rate fell to just more than 6,000 systems, down from 14,500 per month 1 year ago.  About 1.7 gigawatts (GWs) of solar capacity have been installed through the program since its inception.

Solar advocates note that the program is still lucrative for homeowners, because the costs of the systems have also fallen sharply.  At the time of the last FIT cut, the Solar Trade Association in the United Kingdom said that PV system buyers still earn about a 9% return on their investment, and pointed out that electric rates were still rising.  Indeed, according to a recent report by DECC, electric rates across the United Kingdom have risen by nearly 50% since 2005 in real terms.

The FIT program in the United Kingdom was controversial and the abrupt policy changes have led directly to business failures, like the one described in this Dragon’s Den article.  But where the grumbling appears to have tapered off in the United Kingdom , ire over net metering policies in the U.S. is just hitting its stride.

Policies meant to drive usage of renewable energy must be sustainable (pun intended) for both customers and utilities.  In my next blog, I’ll discuss some of the proposals designed to align the longer-term climate goals of renewable integration with the nearer-term financial needs of utilities and consumers.

 

Hawaii’s Smart Grid a Matter of Necessity

— October 1, 2013

Energy_webTake a disjointed cluster of island power grids, add a rapidly increasing portfolio of wind and solar generation, and combine it with the highest cost of electricity in the nation, and what you get is an ideal setting for introducing an efficient smart grid.  The islands of Hawaii are doing just that, adding technologies that can manage the variability of renewable power generation and eliminate energy waste.

In addition to support from the U.S. federal government through ARRA grants, the governments of South Korea and Japan both recognize the possibilities of Hawaii as smart grid test bed and have provided funding and technology.  Today, those efforts are bearing fruit in the form of smart grid pilot projects, including the Japanese-funded JUMPSmartMaui, a 5-year effort that makes electric vehicles (EVs) central to reaping the benefits of an efficient smart grid.

The program utilizes the smart charging of Nissan LEAFs and the deployment of home energy management systems to respond to grid conditions, including slowing or accelerating charging based on the amount of renewable power being produced.  I received a demonstration of smart charging courtesy of Tadahiro Togami of Hitachi.  The company’s direct current (DC) fast chargers are part of the program to collect vehicle charging data.

Hitachi’s smart chargers can respond to grid changes in frequency or voltage, as well as participate in demand response programs.  The public utilities commission of Hawaii has made DC fast chargers immune from paying demand charges, a potentially costly fee structure when high rates of power are delivered during times of peak demand.  In the future, Hitachi will implement bi-directional charging, in which Nissan LEAFs will provide power to the grid as part of a vehicle-to-grid demonstration.  Togami said that the power authority in Japan (TEPCO) is conservative in evaluating new technologies, so the Japanese government is paying to evaluate smart charging on Maui as part of the $500,000 smart charging project.

EVs are critical to Hawaii’s power grid because of the increasing amount of intermittent wind and solar power.  For example, the amount of photovoltaics in Maui has doubled in the past 2 years to 37 MW, and there is currently 72 MW of wind power.  All of that variability requires ample spinning reserves of diesel-powered generators, and much of the renewable power must be curtailed because the supply sometimes far exceeds demand.  Only 45% of the power produced by a recently installed wind farm on Maui is actually used, so the local utilities are considering an undersea grid interconnect with neighboring islands.  EVs are seen as another part of the solution, as their charging can be scheduled to partially align with renewable power production.

Hawaii pays a high price for the current inefficiency, as customers pay between $0.31 and $0.46 per kWh for electricity and 90% of the state’s energy is imported.  That’s approximately $5 billion leaving the local economy each year in the form of fossil fuels that negatively affect the environment of this environmentally conscious state.

 

California Bills Shape New Energy World

— September 16, 2013

Cross_Gatel_webCalifornia governor Jerry Brown is likely to sign two key pieces of legislation this fall that will have a strong impact on two technologies influencing energy markets globally.

The first bill is AB 327, which addresses the topic of net metering for rooftop solar photovoltaic (PV) systems and residential rate reform.  Net metering allows owners of small solar PV systems to use the grid as a giant battery, shifting any excess generation to the grid for use by other utility customers, and then taking back energy from the grid when the sun isn’t shining.  I tackled this topic in January as the legislative cycle began, highlighting utility complaints that, as more and more customers generate their own power using net metering, the costs of maintaining the power grid that benefits us all are spread across a smaller and smaller set of customers without solar PV.

Here are the primary aspects of AB 327 that could create a seemingly unlimited market for not only solar PV, but all forms of renewable energy:

  • Removes the scheduled suspension on net metering that was to go into effect at the end of this year
  • Eliminates uncertainty over how the current net metering cap is calculated, and provides a framework for permanently removing the net metering cap altogether
  • Removes the current 33% ceiling on the state’s Renewable Portfolio Standard, which, in essence, means there is also no cap on California’s wholesale renewable energy supplies

Pacific Gas & Electric, with a nation-leading 90,000 customers taking advantage of net metering, supported AB 327, as did the solar lobby and ratepayer advocates, but only after a series of last minute amendments brokered, in part, by the governor’s office.  What makes this legislative consensus even more amazing is that California has among the most liberal net metering laws in the country.  The battle over net metering is still brewing across the United States, but this California deal may take some of the some of the acrimony out of the debate, and point a path forward for compromise.

The other bill worth noting heading for Gov. Brown’s signature this month is SB 4, which addresses natural gas fracking, which has helped provide a huge supply of low-priced natural gas but, according to critics, also poses environmental risks.  Just as utilities have attacked net metering, the American Petroleum Institute has sought to undermine RPS laws, arguing that they increase costs to consumers and favor renewable sources over natural gas.  Natural gas prices have doubled in California in the last year, which, coupled with tighter limits on emissions of carbon due to the state’s climate change law, led to a 70% increase in wholesale energy prices in California.  Only time will tell how the combination of new fracking regulations and removal of any prescribed limit on retail and wholesale renewables will impact California’s energy market.  My prediction?  Growth in microgrids and other smart grid solutions will continue, as clearly the current status quo will no longer do.

 

Concentrating Solar Thermal Market Losing Steam?

— September 9, 2013

Many in the cleantech industry 5 years ago (myself included) believed that concentrating solar thermal electric (CSTE) technologies represented the only way to get to competitive solar electricity pricing in the near term.

Very smart people saw the same opportunity in 2008:

“With the current plants, those in construction, those under consideration, and the pace of development, it is clear that some tens of gigawatts (GW) of cumulative production over the next decade – possibly as much as 50 GW – of concentrated solar power (CSP) capacity will be installed by 2020.”

By the end of 2013, only roughly 3 GW of CSTE will be installed worldwide, and only 1-2 GW is expected to be added annually through 2018.  Meanwhile, in 2018, more than 60 GW of solar PV will be installed in that year alone, according to Navigant Research’s recently released Solar PV Market Forecast report.

Drying Up in the Desert

Visions of mega-projects in the Mojave Desert, which at one point reached 24 GW on U.S. Federal Bureau of Land Management property alone, have seemingly evaporated.  Plans for similarly ambitious installations throughout North Africa and the Middle East have progressed slowly.  The first phase of a targeted 500 MW CSP plant is expected to come online in 2014 in Morocco.

To be sure, some impressive projects have moved forward in the United States, including a 377 MW project being built in partnership with Brightsource, NRG, and Google in the Mojave Desert that will be the largest solar thermal facility in the world when completed at the end of the year.  However, the industry is clearly not reaching its full potential.  There are a number of reasons for this.

The economic crisis crippled project financing in leading markets such as Spain and the United States, and environmental concerns over transmission lines and water usage have cast a shadow over promising projects in the U.S. Southwest.  Political turmoil has delayed project planning in the Middle East.  Natural gas prices have fallen precipitously in the United States (although, they’ve rebounded somewhat in the last year), while, at the same time, the rapid price decline of solar PV modules has enabled both utility-scale and distributed solar projects to come online more quickly and affordable than anticipated.

Focus on Value

This has forced many CSTE developers to focus on the key value that the technology brings to the table, namely hybrid and storage applications.  Utilities, including Florida Power & Light and Tuscon Electric Power, have experimented with integrating solar thermal technology into existing (or co-located with) natural gas-fired plants.  In 2011, GE announced a hybrid natural gas solar thermal plant in Turkey with target for completion in 2015.  But the market for these applications has not taken off as expected either.

The benefits of storage are more appealing since the use of molten salt and other thermal storage technologies enables greater flexibility in dispatching power to the grid.  A recent NREL study found that the value of CSTE with storage is $32/megawatt-hour (MWh) to $40/MWh higher than the value of a solar PV plant.

Brightsource expects the global market for CSP to be approximately 30 GW by 2020, with growth from the Americas, China, Middle East, North Africa, and South Africa.  That’s highly optimistic.  Even though the two are not mutually exclusive, CSTE is expected to remain only a fraction of the solar PV market for the foreseeable future.

 

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