Tres Amigas project overview

August 26, 2010

Michael Giberson

The Texas Tribune offers an up-to-date overview of the Tres Amigas project. Here is the intro:

Texas has always operated its own energy grid, separate from the two other grids that span the rest of the nation. But a project quietly emerging in eastern New Mexico would curb that independence — and affect energy prices for Texas consumers in ways that remain much in dispute.

The $2 billion project could connect all three grids (eastern, western, and Texas) as soon as 2013. They would meet near Clovis, N.M., just west of the Texas border. The Federal Energy Regulatory Commission has given a preliminary go-ahead to the proposal, known as Tres Amigas, which doubles as the name of the company running it. The federal commission’s chairman has praised it as a “prime example of the creativity and pioneering thinking that our country needs.”

But serious questions remain over whether the project would benefit Texas residents and businesses — whether electricity prices would rise or fall and whether the connections would allow other states to siphon off too much of Texas’ wind power.  (Links in source.)

I’m not convinced that “serious questions remain over whether the project would benefit Texas residents and businesses,” except for the Federal/State jurisdiction issue.  (Discussed here before.)  The general economic and reliability benefits from linking power systems are well demonstrated and not seriously questioned.

The article wraps up with a question to Tres Amigas CEO Phil Harris:

Asked if Tres Amigas would move forward if only two grids — eastern and western — signed up, Harris replied: “Yeah. That’s already proceeding.” Construction of that interconnection should begin next year. But he quickly added that his company was “extraordinarily confident” that Texans would reap economic value from the project. “If there’s no benefit,” he says, “obviously you wouldn’t want to do it.”

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Posted by Michael Giberson

Tres Amigas in the news

August 10, 2010

Michael Giberson

Tres Amigas, as seen by their hometown newspaper The Santa Fe New Mexican, “Supersized power hub in southeastern N.M. to link 3 major U.S. grids“:

Phil Harris is masterminding an electricity superhighway — a facility near Clovis that will connect the nation’s three main power grids for the first time.

The Tres Amigas Superstation will link the Western Interconnection, Eastern Interconnection and Texas Interconnection at a point in southeastern New Mexico. It also will provide the transmission capacity that power managers say is needed to handle the renewable energy expected from new solar and wind sources.

The hub will allow energy to flow between the grids via superconductor cables in underground pipelines and AC/DC converters….

One of the problems is the current system for delivering power across the country is complex and separated by region. The lack of connection limits competition in power markets, Harris said. “In the U.S., no one is in charge. We have over 4,000 entities involved with power.”

Those entities include investor-owned utilities such as Public Service Company of New Mexico, 800 municipal power companies, 900 electric cooperatives, renewable energy generators and power traders such as Goldman Sachs. Regulations vary by group. So do power interconnections.

“There’s no way you can get a single decision about what is best for America,” Harris said.

“People are paying more (for electricity) than they should because it is a constrained market,” he added.

Tres Amigas will make the power market more competitive. Harris is banking on it, to the tune of investing $1 million of his own money in the project, he said.

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Posted by Michael Giberson

Coasian bargaining on wind turbine noise

August 2, 2010

Michael Giberson

Preston McAfee and Tracy Lewis introduce Coasian bargaining in their economics textbook with the question, “Can I just bribe my neighbor to stop being annoying?”  The complementary question, perhaps asked by the neighbor in question, “Can I just bribe my neighbor to stop being annoyed (or at least not to complain about me)?”

The New York Times reports that a wind power developer working in eastern Oregon is offering some residents near a power project $5,000 in exchange for an agreement not to complain about the noise made by wind turbines.  Many times neighbors to wind power projects have filed nuisance complaints, and often these complaints get nowhere in part due to lack of clear property rights.  In the case of Oregon a state industrial noise ordinance gives some clarity to the property right, enabling Coasian bargaining to proceed.

RELATED:

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Posted by Michael Giberson

Too much dam water?

July 7, 2010

Michael Giberson

Matthew Wald at the New York Times Green blog reports on the Bonneville Power Administration’s problem of having too much water and wind power at the same time.  For about 5 days in early June, storms producing wind and rainwater led to a lot of wind power and too much water in the reservoirs.  As much power as possible was sold to other areas, fossil-fueled generators were cut to essentially zero and even the area nuclear power plants, normally operating at near 100 percent of capacity, were asked to cut back to 22 percent.

4 Comments | Electricity, Energy markets, Environmental policy | Tagged: , | Permalink
Posted by Michael Giberson

When should a solar power installer be treated like a regulated public utility?

June 15, 2010

Michael Giberson

In Arizona, solar power installation company SolarCity has been told it must be regulated as a public utility if it employs a financing arrangement it has developed, a “solar services agreement,” to sell its services to non-profit entities.

Usually SolarCity builds solar power systems and provides financing and ongoing monitoring services, but doesn’t own the installed systems or sell the power generated by the systems.  While solar power is expensive, these installations can be profitable to their owners because the cost is heavily subsidized via federal tax credits and other subsidies.  Because non-profit entities, like public schools, don’t have federal tax obligations, tax-based subsidies are valueless and the normal project designs won’t work.  SolarCity structured their solar services agreement so the non-profit can indirectly capture the benefits of the federal tax credit, but the approach requires SolarCity to become owner of the solar power installation and provide power to the non-profit.  The question under Arizona law is whether SolarCity is “furnishing … electricity for light, fuel, or power” as described but Article 15 Section 2 of the state’s constitution.  If so, it is deemed a “public service corporation” and must be regulated as a utility.

A post at the Rose Law Group Blog provides links to a few of the regulatory documents spawned by the discussion.  Groups as diverse as the Goldwater Institute, the Phoenix Suns, and the Vote Solar Initiative have weighed in in favor of exempting SolarCity from regulation as public utility.  Many of these comments are not much more substantive than assertions that the parties like solar power and don’t want it burdened by regulations.

For the Goldwater Institute, however, it is more likely the case that they don’t like regulation and want to minimize the burden of the regulation on commerce.  The Goldwater Institute op-ed (written with a representative of the Sierra Club) does get to the substantive issue: companies negotiating solar services agreements are not monopoly utilities, they do not have captive customers, and hence there is no public benefit from treating solar power installers as if they were monopoly utilities.

I’m persuaded by this argument.  I just hope whatever decision the Arizona Corporation Commission (ACC) comes to is also extended to wind power companies, biomass-power companies, cogeneration companies, fuel cell based power producers, and, in fact, to all distributed generation resources of all types.  To this end, the ACC ought to avoid tailoring its response to fit the very specific circumstances of solar power installations providing power to non-profit entities, and instead focus on identifying how and why competitive suppliers of distributed energy resources ought to be able to furnish power to Arizona consumers without becoming regulated as public utilities.

(MAYBE, since this proceeding was founded by SunCity’s request for clarification that its solar services agreement would not result in it being regulated by the state, the ACC can’t do more that conclude that SunCity ought not be regulated by the state.  In that case, the ACC may be able to, on its own initiative, issue a policy statement that generalizes the principles by which competitive suppliers of distributive energy resources can pursue similar contracting arrangements.)

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Posted by Michael Giberson

Texas wind power: It isn’t about the RPS

May 18, 2010

Michael Giberson

Texas did it again, it achieved it’s target for new renewable power generation capacity years ahead of schedule. And so, of course, as it becomes increasingly obvious that the Texas Renewable Portfolio Standard (RPS) is essentially irrelevant to growth in wind power, the Texas RPS is increasingly held up as a success and model for other states and the federal government.

From Brighterenergy.org:

The State of Texas exceeded its 2025 renewable energy target 15 years early last year.

The Electric Reliability Council of Texas (ERCOT) said on Friday that there was a record increase in voluntary participation in the state’s renewable energy certificate program in 2009.

Nearly 15 million renewable energy credits [RECs] were retired last year, with just 6.79 million needed by retail electricity providers to satisfy the state’s renewable portfolio standard for the year.

A further 8.14 million RECs were voluntarily retired, surpassing 2008’s record of 6.77 million.

The figures came as ERCOT submitted its annual report on the scheme to the Texas Public Utility Commission.

With more than 10,000 megawatts of renewable energy capacity on the Texas grid – mostly wind power – the state has reached its 2025 target 15 years early, and has doubled the target set for 2015.

The original mandate for 2009 was just 2,000MW, which was achieved three years early.

“Successful”

ERCOT interim CEO Trip Doggett said: “The Texas program was the first of its kind in the nation when it began in 2001, and it is now recognized as one of the most effective and successful in the nation.

“It’s also one of the biggest influences on the rapid growth of wind energy in Texas,” added Mr Doggett.

Other than the popular but faulty post hoc ergo propter hoc logic, what is the evidence?

Sort of like the 45 mph minimum speed limits on some Texas highways, the constraints are so far from binding that it is hard to see how they are relevant.

I think a better explanation of the growth of wind power in Texas (and about 95% of the Texas REC-qualifying renewable power capacity is wind power) is the combination of federal Production Tax Credit subsidies + reasonably good quality wind resources near transmission lines.  The CREZ transmission expansion plan is likely the next most important factor.  REC monies along with other state and local tax exemptions are far smaller considerations, perhaps tipping the balance in favor of development for a few projects.

What is my evidence? Oh, actually, what I have is more of an inference and interpretation drawn from a number of mostly anecdotal sources.  Nothing really reliable to show.  But given the lobbying for a national RPS, it makes a difference whether or not the Texas law is the model it is held out to be.

I’m sure someone has put together the story somewhere.  Anyone know of anything?

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Posted by Michael Giberson

Per capita energy consumption has declined in the United States

May 17, 2010

Michael Giberson

At the Freakonomics blog, James McWilliams offers a review of sorts of Robert Bryce’s new book Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future.  McWilliams reports that the book is “a sustained attack on our irrational infatuation with wind and solar power.” Part of Bryce’s “sustained attack” is a chapter on Denmark and wind energy, and McWilliams’s piece mostly directs itself to explaining and commenting on the Denmark chapter.

Unfortunately, McWilliams’s review only convinces me I shouldn’t rely on his opinions on energy topics.

I end up not believing the review mostly because the explanations of Denmark’s situation feel incomplete and a bit ad hoc.  But rather than ask you to trust my feelings, let’s look at a point McWilliams made where fact checking is easy. Here is McWilliams:

It should be noted, in all fairness to Denmark, that its citizens have done something the U.S. seems unwilling to do: they’ve kept energy demand flat. Today, Denmark uses the same amount of per capita energy as it did in 1981. Remarkable.

Do you interpret these two sentences as McWilliams claiming that Danish consumers have kept per capita energy use level since 1981 and U.S. consumers have increased per capita energy use?

A few moments on the internet turns up data from the U.S. Energy Information Administration on per capita energy use: per capita energy use was 332 million BTU in the United States in 1981, 327 million BTU in 2008, and 310 million BTU in 2009.  These numbers are from the 2008 Annual Energy Review and the 2010 Annual Energy Outlook.  A EIA spreadsheet from the 2006 International Energy Annual [XLS] has data on many countries, including the U.S. and Denmark, over the period 1980-2006. In general both countries have seen ups and downs in per capita energy use from 1980 to 2006, with the ups tending to reflect periods of low energy prices or stronger economic growth and the downs tending to reflect periods of higher energy prices or weaker energy growth. Unremarkable.

Since I can’t rely on McWilliams’s review, I don’t know yet whether I’m interested or not in Bryce’s book.  However, Bryce’s “Five myths about green energy,” an op-ed appearing in the Washington Post just before the his book was published, seems similarly incomplete and ad hoc in its analysis. (How critical for energy policy analysis is a calculation of watts of energy output per square meter of land devoted to energy production? It strikes me as reaching for a techno-scientific sounding statistic to dress up the author’s dismissal of wind power which is itself based on other grounds.) But op-eds are brief and by nature driven to anecdote rather than careful explication of data; maybe the book has more substance.

(A tip of the hat with link to John Whitehead at Environmental Economics for drawing my attention to the McWilliams review at Freakonomics.)

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Posted by Michael Giberson

More on efficient trade between power markets

May 12, 2010

Michael Giberson

A paper by Giorgia Oggioni and Yves Smeers, “Degree of coordination in market-coupling and counter-trading,” examines the value of improving coordination between separate-but-interconnected power markets. (A post here last week cited a recent Windpower Monthly article that provides a good non-technical discussion of the issue. If you are not familiar with market coupling, I recommend you first read the Windpower Monthly article linked to in the earlier post. The Oggioni and Smeers paper provides a more technical discussion.)

In brief, Oggioni and Smeers compare market coupling regimes to both an ideal market* on the one hand and separate market-to-market coordination agreements** on the other hand. Not surprisingly, they find the ideal market design is most efficient and independent market-to-market coordination is least efficient in their numerical analysis. An encompassing market coupling system (a single market coupling system able to redispatch all available energy supply resources) also achieves a high degree of efficiency. Somewhat surprising to me was that multiple independent but overlapping market coupling systems achieved similarly high degrees of efficiency so long as each supply resource is available to at least one market coupling system and each supply resource is available on the same terms (i.e. at the same price) to each market coupling system that can access it.

The paper is written to address circumstances in the European market, but has implications for trade between power systems in the United States and elsewhere as well. To put this in a U.S. context, the article suggests that if trade between the New York ISO and ISO-New England was well integrated, and if trade between the New York ISO and PJM was well integrated, then the three systems would attain a high degree of efficiency even without resorting to a single integrated dispatch across the three regional power markets.

In principle, adding efficient trade between PJM and MISO, and efficient trade between MISO and SPP, and suddenly one can obtain efficient power system arbitrage subject to the limits of the transmission system stretching from the tip of Maine down to the eastern edge of New Mexico.

In practice a few issues intrude.  Market coupling in Europe is, I think, still limited to day-ahead coordination between power systems, leaving the transmission system operators to address independently the changes in local supply and demand that arise after the day-ahead result is published.  Moving toward real-time market coupling would create additional economic value, but at the cost of a significant increase in data sharing requirements and a higher computational burden on the system operators. In considering priorities for further power market development, then, the issue is whether the benefits of moving closer to real-time market coupling are worth the costs, and this ratio then compared to the benefit-cost ratio of other identified potential market improvements.

*Ideal market = a single security-constrained economic dispatch covering the entire region, using a fully developed transmission model and accurate depictions of generation characteristics.

**Market-to-market coordination agreements = bilateral agreements between markets that govern access to the transmission capacity between the systems and setting rules to resolve congestion on the interconnecting transmission lines.

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Posted by Michael Giberson

The right market design for trade between power markets

May 7, 2010

Michael Giberson

Windpower Monthly has a great article describing changes in the market for transmission capacity between power systems in Europe and the benefits of the changes.  Here is a summary by way of selected quotes, but the full story is worth reading:

Most of the electricity cables connecting Europe were built when electricity systems in each country were monopolised by a single or, at most, a few companies, each operating within their individual monopoly supply areas. Each utility ran its own system and had its own generation backup for emergencies. There was no competitive pressure on the higher costs of such “island” systems since these could easily be passed on to customers who, in those days, had no alternative suppliers that they could switch to.

These interconnectors were built between neighbouring countries’ electricity grids not to enable trading and competition across borders but rather for the utilities to help each other out….  [As the Eurpopean power industry was liberalized] insufficient connection capacity between some of the national electricity networks [emerged as] one of the key problems.  [An] efficient allocation for the scarce interconnector capacity that is available is crucial to make improvements towards an integrated European electricity market.

Before the new [market coupling] system started, transmission capacity available on the two interconnectors was sold to electricity traders in tranches in annual, monthly and daily auctions, called explicit auctions. This happened completely separate from auctioning of electricity with the result that, due to the time lag in buying the transport capacity and the actual time of use, as well as other reasons, inefficiencies occurred.

Transport capacity could be bought ahead of time and hoarded, a form of market abuse. Or transmission capacity was bought for one direction, say from Germany to Denmark, which then turned out to be inappropriate because the price difference between the two was such that the electricity ought to flow in the other direction – from the low- to the high-price zone. In such instances, the electricity did then flow in the wrong direction, contradicting market forces, or not allowing extra capacity to be used – and traders and end users lost out.

Explicit auctions were implemented for interconnectors at most European borders, recounts [EMCC managing director Enno] Bšttcher. “Even though this can be considered as progress compared to the formerly applied first-come, first-served or pro-rata regimes, explicit auctions still have many disadvantages,” he says.

Today, explicit auction methods have become more sophisticated. The fundamental flaw, however, remains: that actual trade of electricity at energy exchanges in the different market areas is separate from transmission capacity, trading leading to market inefficiency. This can be reduced by combining cross-border transmission capacity allocation and electricity trade from one country or market area to another in a so-called market-coupling regime.

Market coupling uses implicit auctioning and focuses on the short term (day ahead), rather than months or a year ahead. The transmission capacity available on an interconnector the next day, as reported by the transmission system operators (TSOs), is matched with electricity bought or sold on the energy exchanges in the two countries involved for delivery the next day, creating a price for the transmission capacity and making it clear in which direction the market requires use of the transmission capacity of the cables.

In effect, market coupling is a charge placed on the power exported or imported between countries when the network interconnector capacity is optimised to reduce congestion.

The result of market coupling is that the interconnected power systems operate more efficiently, benefiting consumers and low-cost producers of power.

As Tres Amigas works out its design for the sale of transmission capacity across the proposed three-way transmission interconnection, market coupling should be among the designs contemplated.

Note that while day-ahead market coupling seems to work well between systems with relatively few interconnecting links, more complex transmission links between systems – say as exists between PJM and the Midwest ISO – may well call for still more extensive coordination. The market coupling principle seems sound, so probably forms an adequate foundation to build upon, but simple day-ahead coordination is likely insufficient. Real-time market coupling, anyone?

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Posted by Michael Giberson

Google’s investment in wind generation

May 4, 2010

Lynne Kiesling

Yesterday Google announced that their ever-growing sustainability strategy now includes investing in wind generation. Although they pursue these opportunities through their philanthropic arm, they claim that they are looking for meaningful returns on their investments in addition to their sustainability impact:

To reach a clean energy future, we need three things: effective policy, innovative technology and smart capital. Through our philanthropic arm Google.org, we’ve been pushing for energy policies that strengthen the innovation pipeline, and we’ve been dedicating resources to developing new technologies, including making investments in early-stage renewable energy companies such as eSolar and AltaRock. Smart capital includes not only these early-stage company investments, but also dedicated funding for utility-scale projects. To tackle this need, we’ve been looking at investments in renewable energy projects, like the one we just signed, that can accelerate the deployment of the latest clean energy technology while providing attractive returns to Google and more capital for developers to build additional projects.

This moves adds to their portfolio of energy activities, including the Google PowerMeter and efforts to develop more energy efficient and green data center technologies and building techniques.

I do wonder, though, if such clean tech investments stretch the economies of scope in Google’s strategy. I’d love to know the exact arguments they have made internally in deciding on these renewable generation investments. While I think they take advantage of the expected policy environment (renewable portfolio standards, etc.), these investments are pretty different from Google’s traditional areas.

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Posted by lkiesling

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