Posts Tagged ‘Wind’

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Integrating variable energy resources to the electric power grid

January 26, 2010

Michael Giberson

Are their barriers impeding integration of variable energy resources to the electric grid? FERC wants to know:

The Federal Energy Regulatory Commission (Commission) seeks comment on the extent to which barriers may exist that impede the reliable and efficient integration of variable energy resources (VERs) into the electric grid, and whether reforms are needed to eliminate those barriers. In order to meet the challenges posed by the integration of increasing numbers of VERs, ensure that jurisdictional rates are just and reasonable, eliminate impediments to open access transmission service for all resources, facilitate the efficient development of infrastructure, and ensure that the reliability of the grid is maintained, the Commission seeks to explore whether reforms are necessary to ensure that wholesale electricity tariffs are just, reasonable and not unduly discriminatory. This Notice will enable the Commission to determine whether wholesale electricity tariff reforms are necessary.

Hmmm, “variable energy resources”?  Does that mean things like steam generation units that can be adjusted up and down over some range (but not things like a gas turbine that is either on or off, but not adjustable in between)? No, they mean “variable but not very controllable energy resources” such as wind and solar power.  They write: “For purposes of this proceeding, the term variable energy resource (VER) refers to renewable energy resources that are characterized by variability in the fuel source that is beyond the control of the resource operator.”

I wonder why they didn’t just use the term “renewable energy resources”? Were they afraid of offending hydro and geothermal interests?  Are they hoping to ease the taint of not-very-controllable from renewable energy resources?

The proceeding is “Integration of Variable Energy Resources” (FERC RM10-11-000). In paragraph 10, FERC states:

Our goal is not to adopt rules that favor one type of supply source over another. Instead, the Commission’s purpose in this proceeding is to investigate market and operational reforms necessary to achieve two goals: first, to ensure that rates for jurisdictional service are just and reasonable, reflecting the implementation of practices that increase the efficiency of providing service; and second, to prevent VERs from facing undue discrimination. These goals are consistent with the requirements of sections 205 and 206 of the FPA.

The challenge here is in separating the “due discrimination” from the “undue discrimination,” which is to say the charges and special terms and conditions applied to VERs that are reasonable given the character of the resource from the charges, terms and conditions which are unreasonable.

Posted in Electricity, Energy markets, Environmental policy | Tagged , , , , | 2 Comments »

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What the FPL 2009 3Q earnings call transcript says about the Texas retail market

November 5, 2009

Michael Giberson

Seeking Alpha has begun publishing transcripts of quarterly corporate earnings calls. Typically these calls are discussions presented by the CEO and other corporate officers followed by Q&A with financial analysts.  The calls offer a more “inside look” at company operations than you get from reading newspaper or magazine stories or even trade press.  What’s more, the calls provide insight into the markets that the company participates in.  The FPL Group Inc. 3Q 2009 call provides several insights into the electric business in Texas, where FPL participates in both the wholesale and retail markets.

FPL, through its NextEra Energy Resources subsidiary, owns both fossil-fueled and wind power plants in Texas and several other places.  Currently the company is the second-largest operator of wind power plants in the world behind Iberdrola.  FPL owns Gexa Energy, a energy retailer in Texas serving about 172,000 customers (according to Wikipedia).

The earnings call spanned the range of FPL Group activities and interests.  There is much here of interest in Texas: FPL has recently completed a 200-mile self-funded transmission line linking four of its wind power plants in ERCOT’s west region directly to the higher-priced ERCOT south region, they’ve added both wind power and natural gas generation in Texas, and they are constantly trying to balance their risk exposures for their wholesale and retail obligations in the state.

I thought the call was particularly interesting for what it implied about retail market profit margins during the current low-wholesale power prices in Texas (and most other places).  Earnings from their merchant generator fleet are down:

Although we were pleased with the $0.11 year-over-year improvement in NextEra Energy Resources’ quarterly earnings per share contributions, the financial performance did not meet our internal expectations. Two factors primarily drive this: the Texas merchant gas fleet and the wind resource. Let me explain a bit further.

On the former, contributions from the Texas gas fleet were approximately $24 million or $0.06 per share below our quarterly expectations. Both spark spreads and ancillary revenues were much lower than we expected.

As for the latter, as I mentioned a moment ago, the wind resource in the third quarter was well below normal or roughly $0.06 per share below our expectations. … For the year, the poor wind resource has reduced per share results by nearly $0.13.

Elsewhere in the call:

Meanwhile, our retail business in Texas … added about $0.04 per share incrementally given favorable margins. The remaining contributions from the existing merchant fleet amounted to negative $0.02 per share, but there is nothing notable in any one category worth calling out.

Later in the call:

Just one last comment: As I’ve said before, we’re certainly not happy that ancillary revenue is down at our gas plants in Texas, but one of the reasons that [inaudible] retail business is up $0.04 quarter-over-quarter is because they didn’t have to pay the ancillary cost to our gas assets and other gas assets.

A couple of comments:

First, the ownership of both wholesale and retail assets in the Texas competitive market provides a sort of natural hedge against fuel price movements. When wholesale power revenue or ancillary service revenues are low, as currently, the wholesale business suffers but the retail side benefits. (See related discussion on wholesale-retail combination in Texas, and earlier here.)

Second, while retail prices have fallen in Texas, they haven’t fallen as far and as fast as wholesale prices, so retail margins are higher for FPL.  The call doesn’t fully clarify the reasons here.  The most straightforward explanation is that FPL likely has many customers on one- or two-year fixed price contracts, with prices that relatively high now (but presumably competitive one or two years ago.) Also, as noted in the call, costs for ancillary services were unexpectedly low, which reduced expenses for the retail side.

But margins may be higher, too, if retail prices are slow to adjust to dropping wholesale prices.  I wonder whether there is an asymmetric price adjustment phenomenon in competitive retail electricity? Do consumers shop around more and switch companies more when prices are going up as compared to when prices are falling?  Probably, and that should be enough of a force to produce a “rockets and feathers” effect on prices.

Finally, and I don’t think the call made this connection, but I wonder whether there is a link between the lower-than-expected wind resource and the low revenues/costs associated with ancillary services.  To some degree, variable wind power output increases the demand for energy balancing and other ancillary services required by the transmission system for reliable operations.  Possibly with less wind power coming on the system, fewer ancillary services were required.  Of course low natural gas prices and on-average slightly lower electric power demand would also reduce the cost of ancillary services, so the explanation may not be wind-output related.

NOTE: FPL’s 200-mile self-funded transmission line, dubbed the “Texas Clean Energy Express,” raises a host of interesting issues worthy of examination.  One of these days…

ALSO: Of course FPL Group Inc. isn’t the only company with an interest in the Texas electric power market.  Search “Texas AND electric” at Seeking Alpha’s Transcript Center for much much more.  If you find anything interesting, let me know.

Posted in Electricity, Energy markets | Tagged , , | 1 Comment »

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Feed-in tariffs waste resources and make it harder to meet Europe’s renewable energy goals

August 13, 2009

Michael Giberson

Feed-in tariffs waste resources and make it harder to meet Europe’s renewable energy goals according to a guest post by Omar Abbosh on the Financial Times Energysource blog, at least in the absence of a single, integrated electric power market in Europe.  Abbosh, a managing director at Accenture, notes that generous feed-in tariffs have led Germany to build a lot of solar and wind power capacity, but renewable energy output would be significantly higher had those wind power turbines been built in the U.K. and the solar power systems installed in Spain.

I’m putting a slightly more negative spin on the feed-in tariff issue than Abbosh himself does (in part as a reaction to the “unequivocally superior” comment discussed earlier), so I’ll give Abbosh the final word:

To reach our renewable targets more cost effectively, Europe must implement a consistent policy framework to drive renewable generation to those areas with greatest natural advantage. Options include centrally coordinated carbon contracts and feed in tariffs.

Options include a feed in tariff? Well, he is right that a Europe-wide feed in tariff would likely do a better job than more localized feed in tariffs of locating renewable energy resources where they would produce more output.

Of course, one goal of renewable power policy in Europe is to reduce greenhouse gas emissions, and locating wind and solar where they produce the most output doesn’t necessarily imply the largest reduction in greenhouse gas emissions.  It is possible, for example, that solar power generation in Germany offsets mostly coal-fired plant output while in Spain it would offset natural gas fired generation.  I’m speculating, so my illustration may be in-apt, but the point remains.  Apparently it is harder to distort the market in just the right way than it looks.

(Oh, I forgot that I was giving Abbosh the last word.

Sorry.

Now back to his post:)

However, we advocate the introduction of European Renewable Energy Certificates (RECs).

Under a European RECs system, each nation would agree to levels of electricity generation from renewables, based on the availability of the natural resource in question.  Certificates would be allocated to renewables generators, who would then sell them on an EU-wide trading platform to suppliers unable to meet their obligations. …  As a market-based approach, European RECs would be compatible with the EU’s existing Energy Trading System (ETS).

… Only by replacing distorting national subsides with a coordinated and consistent policy can Europe achieve its renewables targets and continue to lead the climate change debate.

Posted in Electricity, Energy markets, Environmental policy, Regulation | Tagged , , , , | 3 Comments »

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On integrating wind power to the Texas grid

August 3, 2009

Michael Giberson

Nik Rod at Life in Energy discusses the integration of wind power to the ERCOT-managed grid, drawing on a new paper by Ramteen Sioshansi and David Hurlbut titled,“Market Protocols in ERCOT and Their Effect on Wind Generation”:

How do you integrate intermittent wind generating resources in a market with set protocols and rules that are perfectly suited for conventional generating resources?

Faced with this self posed question, I turned to Texas for answers. Yeeehaw! Texas has one of the most vibrant generation markets in the U.S. It also is a state with high installed wind capacity…

By luck I came across an informative paper by Sioshansi and Hurlbut….

Rod distills the paper to the basic points.

Posted in Electricity, Energy markets | Tagged , , , | Comments Off

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Power consumers in ERCOT should keep an eye on PUCT rulemaking project 34577

July 17, 2009

Michael Giberson

Earlier in July, the Public Utility Commission of Texas issued a proposed amendment to its CREZ regulations (the regulations governing the building of transmission to better support development of renewable energy in Texas). The main focus of the proposal is to refine and clarify the process by which the Commission ensures sufficient renewable energy development will take place to justify construction of the planned transmission lines.

A secondary purpose is to revise a section of the regulations addressing the concerns of renewable energy developers that too much wind power development will occur, overwhelming the capability of the transmission system. Consumers should keep an eye on this part of the proposal.

Some developers have been advocating some sort of priority system under which, when transmission-capability is constrained, the newer projects get curtailed first. That sort of system would help discourage overinvestment in a region.

The problem with that kind of rule from an efficiency standpoint is that it isn’t obvious that the older projects are likely to be the most efficient (and likely the opposite is the case). In any case, the forthcoming nodal market design is designed from the ground up to address just this kind of problem using prices.  Wind farm operators that don’t want to be curtailed just need to offer power at a low enough price to ensure their offer is lower than the competition.  When there is “too much” wind power, prices may go very low (or even negative when wind power production is subsidized).

Of course, wind power operators don’t like rationing the excess by price, because that means the price sometimes will go very low. They would rather have a rule to curtail their competition without having to cut prices. Consumers, on the other hand, benefit when suppliers have to compete through cutting prices.

The proposed amendment looks good from the consumers point of view. The regulation was initially written in a way that suggested the commission should discourage ‘excess’ interconnection and curtail some suppliers by non-price methods.  The proposal would change the language to first have the commission assess whether market prices do an adequate job of managing congestion – which the new nodal market design should do – and then. if the commission finds that the market isn’t doing an adequate job, the commission may initiate a proceeding and may consider limiting interconnection or non-price priority methods.

Wind power developers do face a real problem coordinating investments in renewable power capacity with the buildout of transmission capability. Since wind power developers are simultaneously and independently making investment plans, it is possible that too many will pursue options in location A and too few in location B, just because they are acting like competitive companies should act (i.e., non-collusively).

But enough information about what competitors are up to is available through public documents at ERCOT or the PUCT that companies can avoid getting into too much difficulty, as long as they do there due diligence work diligently.  Once the investments are made, and especially if these investments are made with taxpayer subsidies or electric consumer fee support, consumers should have every expectation that renewable power producers compete in the market just like everyone else is suppose to.

If the price goes negative, that is just the power consumers’ way of getting some of the tax subsidy back.

NOTE: The PUCT rulemaking project number is 34577.

Documents in the proceeding can be found via the PUCT Interchange site – click the login button, enter 34577 as the control number, and press “Search Now.”

HT to the Caprock Plains Wind Energy Association blog.

Posted in Electricity, Energy markets | Tagged , | Comments Off

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World’s first utility-scale, zero-emissions hydrogen power plant?

July 15, 2009

Michael Giberson

The Associated Press is reporting that a New Mexico company, Jetstream Wind (WARNING: annoying animated introduction accompanied by equally annoying dramatic soundtrack), has broken ground on what it claims will be “the world’s first utility-scale, zero-emissions hydrogen power plant.”

According to the company website, their plan is to use renewable energy to produce hydrogen, and then burn the hydrogen to generate electricity. The news story says the plant will “generate enough electricity to power about 6,000 homes.” I’m not sure what that translates into in terms of actual electric capacity, but the company website suggests its plans are for a 10 MW capacity unit.

The website admits that, “the hydrogen production process is typically quite costly due to the great amount of electricity required in the electrolysis process, [but] Jetstream Wind Inc. can power its H2 production facilities with renewable energy, making the process extremely cost-effective.”

If that kind of claim doesn’t have you scratching your head and saying, “What the …?”, then you haven’t  been paying attention.

Given that, in most installations most of the time, renewable power sources other than large-scale hydro are more expensive than your typical fossil-fuel sourced electricity, what that company seems to be saying is, “we are taking a ‘typically quite costly’ process and making it even more costly by relying on expensive renewable sources of power.” How do you get “extremely cost-effective” out of that?

The main values produced here, if any, are in reduced emissions and as an energy storage system.

To the extent the system allows wind power or solar to displace coal-fueled power, for example, local air pollution and greenhouse gas emissions will be reduced. The extra cost of the hydrogen system can be seen as a way to “purchase” the associated environmental benefits.

Excess wind or solar power production can be used to generate hydrogen which is stored and can be used to produce electricity when needed.  Low-cost off-peak generation can be shifted to higher-value on-peak power, or the hydrogen-fueled generator could be used to provide energy balancing, voltage control, and other high-valued ancillary services to the transmission grid. The extra cost of the hydrogen system may be worthwhile as a way to capture these additional values.

My general sense of things it that there are probably cheaper ways of achieving the environmental benefits and providing ancillary services to the transmission grid, but what do I know? I didn’t see any information on the financing of the $219 million project now underway in Truth or Consequences, New Mexico.

If they are investing their own money, I wish them the best of luck.

Posted in Electricity, Energy markets, Environmental policy | Tagged , , | 5 Comments »

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No “magic number” for renewable power

April 20, 2009

Michael Giberson

Peter Behr, reporting for ClimateWire in an article online at the New York Times, captures some of the discussion surrounding the recent NERC report on integrating renewable power to the transmission grid [NERC Press Release] [NERC Executive Summary] [Full NERC Report].

The vast expansion of wind and solar power planned by the Obama administration and congressional leaders is fraught with challenges for the nation’s aged electricity network, grid monitors with the North American Electric Reliability Corp. say.

But a NERC report released today does not call for a slowdown in deployment of renewable energy. Officials expressed confidence that technology solutions will arrive in time.

A section heading in the article states: “No one knows the ‘magic number’ of renewable capacity.”

Revis James, who directs energy technology assessment for the Electric Power Research Institute, said that a critical question hangs over the push to increase renewable energy output. “How much renewable energy can you have before [you] have to have systemic improvements to the system to handle the variability of renewables?” he said. “Is 10 percent too high? No one knows what the magic number is.”

Let’s get right to the answer: there is no “magic number.”

Understanding of the relationships between renewable energy and grid operations is growing with experience, but that understanding is not ever going to yield a magic number. Instead, there are multiple relationships in play and many margins of analysis.

Consider, for example, the nature of the grid that the variable resource is attaching to. ERCOT got lucky in that restructuring of the industry in Texas led to a lot of investment in efficient, flexible natural gas generating plants. As increasing amounts of wind came onto the ERCOT system, there was already a lot of new, efficient, complementary gas-fired generation around to help manage the variable output. Had economics favored large coal-fired steam or new nuclear units in the early 2000s, ERCOT would have had much more difficulty accommodating wind.

For another kind of example, consider the effects of changing relative fuel costs on the dispatch order for a utility or regional power market.  As the recent FERC “State of the Market” report explains, as gas prices fell faster than coal prices in late 2008, efficient gas units became competitive with and even cheaper than baseload coal in some areas. But if flexible efficient natural gas units are operating as baseload units – so near the top of their output range most of the time – then they have little flexibility available to follow load swings or compensate for variable wind power supplies.

Ancillary services practices matter, too. Regional grids with relatively open, transparent balancing markets used for redispatch will find it easier to accommodate variable wind power than systems that rely upon heavy penalties for “unscheduled energy” and cumbersome administrative congestion management procedures. Similarly, grids that have economical and flexible means for procuring regulation service (also called “automated generation control”) and responsive reserves with do better than grids with rigid tools for obtaining such ancillary services. Both of these elements have tended to favor RTO/ISO type markets for the integration of renewable power over traditional, vertically-integrated utilities.

One of the challenges of power market design for RTOs has been figuring out how to pay and how much to pay for generators (and load) willing and able to provide flexibility to the system operator. Frequently, system operators simply assumed that whatever flexibility a generator had should be and would be made available to the system operator to use for reliability purposes. While interruptible loads were typically paid for the service the provided, the programs and the prices were not initially well-integrated to market operations. Over time, the system operators, market participants, and regulators are learning that you get what you pay for. When the RTO didn’t pay for flexibility, it tended to see less and less of it made available.

If the system operator needs flexibility to manage the system reliably, the market operator needs to be able to pay for it (and, to complete the idea, needs to be able to charge the generation owner or load whose system use requires the presence of other, flexible units on the system).

At the recent Gulf Coast Power Association meetings, some representatives of generation and financial investor interests recommended ERCOT pursue a capacity market to support investment in generation. (I didn’t hear any load-side representatives endorse the capacity market concept.) The panel on renewable energy was asked whether a capacity market might be needed to support investment into sufficiently flexible stand-by generation.

The answer here is no, a capacity market is not needed to support investment in complementary generation units or responsive load, but the regional spot market better have some other means for paying for the necessary flexibility. Well-designed ancillary services markets and complementary dynamic procurement practices should do the trick.

Only it is no trick, just a matter of working out the market design.

Posted in Electricity, Environmental policy | Tagged , , , | Comments Off

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Are wind power producers the low cost suppliers of frequency control service in ERCOT?

March 30, 2009

Michael Giberson

ERCOT tries to keep the electric power grid in Texas operating at 60 Hertz (i.e., 60 cycles per second, Hertz is abbreviated “Hz”), like the rest of North America, and a few other places in the world.  If electrical load grows faster than power supply, the system frequency will fall below 60 Hz; if the load drops off faster than supply, the frequency will rise above 60 Hz.  ERCOT tends to have more of a problem with frequency control than elsewhere in the United States because the area does not have strong interconnections with utilities outside ERCOT.

As the system frequency deviates from the ideal, ERCOT sends out signals to selected controllable generators to increase or decrease output to bring the system back into balance. Also, most existing non-wind generators in ERCOT have automated “governor” systems that help maintain system frequency. In certain emergency conditions ERCOT can call on interruptible load to help maintain system frequency.

Increased wind power capacity is adding to the challenges of frequency control in ERCOT, and in response, as Platt’s reports, ERCOT is considering how wind power generators can help contribute to frequency control.  An ERCOT stakeholder committee is meeting tomorrow (March 31, 2009) to discuss the issue, and under consideration is a proposal to require new wind power generators to add the control equipment necessary to enable the wind generators to respond to frequency control instructions from the grid.

The urge to make new wind power generators add control equipment simply because wind power capacity additions will increase the need for frequency control services is a mistake. Rather, ERCOT should pay the generators (or controllable consumer loads!) for the frequency control services it needs and allocate these costs to the consumers and generators that create the need for frequency control services.

If wind power generators are the least cost source of additional frequency control services in ERCOT, they will respond by adding the necessary equipment to their generators. However, as may be likely, if other generators or responsive consumers can offer frequency control more cheaply, then consumers will be better off paying these other market participants for additional frequency control service.

Posted in Electricity | Tagged , , , | 3 Comments »

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Battery technology and the electric power grid and unreliable power sources

March 25, 2009

Michael Giberson

The Christian Science Monitor recently ran a story on battery technology and the electric power grid. I’m not sure that there is much new there for anyone who is already paying attention to energy storage issues in bulk power, but the story provides a decent overview.

AN ASIDE: I’m am always mildly amused when the February 26, 2008 wind power drop-off in Texas is cited as an example of the reliability challenges associated with wind power, at least when the stories omit any mention of the nuclear power drop-off and blackout in Florida on the same day.

As the CSM story mentions, over a three-hour period “wind power output [fell] by 1,400 megawatts” in Texas. (More background here.) In Florida that same day, an early afternoon fire at a FPL substation led to transmission problems, leading several power plants to shut down (including two nuclear reactors and a number of natural gas plants).  All told, Florida lost about 2,500-megawatts of incoming electricity in a few moments (not 1,400 megawatts in a few hours).

It is much more expensive to build and operate a power system capable of withstanding the Florida-kind of problem as compared to the Texas-wind problem, which is why Texas was able to avoid a blackout with the equivalent of a few phone calls, while in Florida schools, stores, and other businesses closed early, traffic backed up due to traffic signals losing power, and perhaps 2 million people were without power for several hours.

Posted in Electricity, Technology | Tagged , | 3 Comments »

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What fixed vs. flexible retail power rates in Texas tell us about wind power in the ERCOT market

January 13, 2009

Michael Giberson

Electric power consumers in (the ERCOT portion of) Texas have many choices when it comes to the electric power retailer they wish to enroll with, and typically each retailer offers a handful of different plans.  Historically speaking, this is a crazy cornucopia of consumer choice not seen anywhere else in the world. Or, seen from another point of view, a lot of data for economists interested in retail electric power not available anywhere else. This post dissects a few bits of that data and offers a preliminary conclusion.

One choice available to many Texas power consumers, but rare elsewhere, is between rates that are variable from month-to-month and rates that are fixed for a longer term.  Typical terms for fixed rate offers are six months and one year, but terms as long as five years are offered.

The primary difference between a variable rate and a fixed rate is whether the customer or the retailer is exposed to the risk of adverse price movements.  A little simple economics leads one to expect that if the retailer is to take on the risk of adverse price movements, the customer will have to pay the retailer to take on the risk. So we’d expect that fixed rate contracts would tend to be higher than variable rate contracts.

And that is just what we see in the offers listed at www.powertochoose.com, the State’s online list (just comparing average offered fixed rate deals to average offered variable rate deals). For example, in the Houston area the average rate for fixed price offers was 14.04 cents/kwh and the average rate for variable price offers was 13.60.  In Dallas, fixed price offers averaged 13.35 cents/kwh and variable price offers averaged 13.03.

But elsewhere in north Texas, specifically the AEP North Texas distribution service territory, the average rate for fixed price offers was 12.7 cents/kwh and the average rate for variable prices offers was 12.8 cents/kwh. So, apparently in parts of north Texas, electric retailers in effect are willing to pay consumers a little bit in exchange for taking on price risk.

Crazy, right?

Well, not exactly.  A fixed rate offer transfers the exposure to both adverse and beneficial price movements.  If a retailer expects prices to fall (relative to the current market expectations), then it would want to encourage customers to lock in at current rates; if the risk of a price movement down is larger than the risk of a price movement up, and retailers are less risk-averse than individual consumers, then retailers would be willing to pay consumers to take on the risk.

And why might retailers in certain parts of north Texas expect prices to fall? Might it be access to large quantities of wind power that sometimes can’t reach Dallas or Houston due to transmission limits – sometimes such large amounts of wind that prices in the ERCOT west region go negative?

I think so.

Admittedly, simple averages of offered fixed and variable rates provide only the coarsest of indicators of what is going on. Maybe more sophisticated analysis makes the anomaly disappear. But at first glance, it looks like another market indicator of the temporary excess supply of subsidized wind power in west Texas.

Posted in Electricity, Energy markets, Environmental policy | Tagged , , , | Comments Off

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