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Clean Energy Bottlenecks … ready solutions exist … New York offshore wind example

November 20th, 2013 · 1 Comment

While there are many bottlenecks that constrain the deployment of renewable energy, two fundamental challenges that inhibit significant deployments seem eminently solvable even within realistic understanding of political, cultural, and financial constraints.

When it comes to renewable energy, Offshore wind turbinesa simple reality:

High-cost money + High-Cost/Risk Technology = Exorbitant Pricing = Minimal / Slow Deployment = Marginal Impact

And, therefore, the clear corollary:

Low-cost money + Low-Cost/Low-Risk Technology = Affordable Prices = Market Penetration = Real-world impact

Renewable energy electricity options (with the general exception of biomass) are capital intensive and low-cost maintenance/operational cost.  Pay upfront and reap the benefits for a long time to come. A hydroelectric dam is far from cheap but — assuming reasonable maintenance and upgrading investment — will provide electricity for a century or more to come with nearly zero marginal cost for each additional generated electron.  If we look at the major hydroelectric dams around the nation, they were developed with low-cost government money and leveraging existing technologies (even as they were, such as Hoover Dam, significant engineering challenges).  America’s hydro-electricity was therefore developed with the model of low-cost public money (with public ownership) + low-cost technology to deliver affordable electricity for generations.

For a variety of reasons — good, bad, indifferent — decisions occur that drive projects toward the “high” rather than “low” cost option.

Offshore wind for New York State provides an excellent example of this issue.
Offshore Wind Turbines Gt Yarmouth

The status quo in New York … in short …

Offshore wind development concepts for New York State (off Long Island, essentially) can be summarized as follows:

Private money + private ownership + far offshore.

This translates into quite high-cost electricity, somewhere in the range of >30 cents per kilowatt hour.

Let us be clear, “far offshore” has several significant advantages:

  • Wind quality is better, thus enabling
    • electricity production for a higher percentage of the time (higher capacity factor), and
    • deployment of larger wind turbines.
  • It is easier to site as there are fewer competing interests (waterways, fisheries, aviation approaches, radar).
  • It is ‘out-of-sight, out-of-mind’ and thus offers a path to avoid irrational NIMBYism.

However …

  • At this time, deepwater offshore wind is mainly in the experimental and early commercial providing stage.
  • All things being equal, farther offshore and in deeper water will mean higher capital and installation costs (such as for additional cabling).

These factors mean that the advantages come with direct and indirect higher costs (re indirect, for example, the higher risk translates to higher cost investor financing).

And, the (paper) reality of the financial world is that private investors and private ownership have a very different profit model than community or public owned projects, for which ‘externalities’ like job creation and pollution reduction can legitimately be counted into the return on investment calculation/consideration.

The combination of private money + private ownership + far offshore is driving projections of LCOE (levelized cost of electricity) in the range of 30 cents per kilowatt hour or higher for wind projects off Long Island. This is roughly 3x the average cost of electricity in the United States.  Such pricing — well outside the ‘norm’ for the U.S. electricity market — flings the doors wide open for legitimate (and, sigh, gives credence to truthiness-laden) challenges as to whether this is the best choice for New York utility customers.

An alternative path in New York … in short

New York State has a luxury in this situation because choices exist that could, quite dramatically change the calculation.

Let’s tackle the equation in order …

  • Public Financing:  The key utilities (NYPA and LIPA) have strong cash positions along with excellent bond ratings.  A multi-year, multi-billionaire dollar offshore wind project with the security of assure power customers for years to come will drive down financing costs by a significant amount (likely by more than half).
  • Public Ownership:  LIPA is a non-profit municipal power authority.  Having LIPA as the owner/operator essentially eliminates the direct profit motive and will, therefore, drive down prices to the customer easily by 10 percent or more.
  • Low-Risk Technology/Deployment:  Long Island has excellent wind resources in many of its shallow water areas. With large numbers of operating wind farms offshore in shallow waters around the world, the technology, deployment, and maintenance issues are all well known and present minimal risk for failure. A significant offshore wind project (10s of gigawatts) could be developed near New York City in shallow water areas.

When one flips the equation to public financing + public ownership + near shore deployment, the LCOE falls dramatically.  According to one New York State wind expert, David Bradley, flipping the equation like this should drop the LCOE from >30 cents to well under 10 cents per kilowatt hour. In fact, Bradley calculates that this approach would deliver clean electricity to the grid at about 7.5 cents per kWh.  With a reasonable 2.5 cents added on for various costs (such as transmission and distribution, etc), this would mean powering New York City with clean electricity at a cost of 10 cents per kWh, roughly half what New York area consumers pay for electricity.

Why does this matter?

The New York City metropolitan area is one the world’s largest and richest urban areas.  While New Yorkers already are roughly half the carbon impact of the average American, there is a quest (see for example, Plan NYC and this new ebook on Mayor Bloomberg’s Hidden Legacy) to reduce that impact as part of a larger climate mitigation and climate adaptation strategy. Replacing fossil-fuel sourced-power — reducing the carbon footprint of New York City area electrons — is part of the agenda.

Offshore wind is the only local renewable energy resource that could produce enough electrons to cover 100% of the area’s electricity requirements. While absurd to consider such a single-point solution, the Metropolitan area will not be powered by locally-generated renewable energy without a serious offshore wind contribution. At over $0.30 per kilowatt hour, it is hard to see this occurring while it would explosively move from potential to actual electricity production at $0.075 per kilowatt hour.

The carbon impact is far from the only issue. Bilfinger - Construction - Roedsand 2 (1) As with other renewable energy options, offshore wind investments translate quite directly into job creation with much of that inexorably occurring in the local area. An offshore wind program targeting over a gigawatt of capacity within the decade would mean 10,000s of jobs in the metropolitan New York area (from construction workers to accountants to the financiers on Wall Street trading LIPA bonds). The $billions to construct the wind projects would have a serious local economic multiplier effect.  And, serving New York City with very stable and low cost (clean) electrons would improve economic competitiveness with areas that pay more for (dirty or clean) electrons and help keep (or attract) businesses into the region.

Beginning construction of near-shore wind farms would have another set of benefits: creating the necessary infrastructure to leverage future developments that lower the risk and infrastructure cost of far offshore, deep-water ‘out of sight, out-of-mind’ wind farms so that, with each passing year, New Yorkers energy requirements would be met with local, renewable energy resources.

Some questions for New Yorkers:

  • How much more are you willing to pay for electricity to have wind production ‘out of sight, out of mind’? At what price NIMBYism?
  • Do you want 10,000s of new jobs in your communities?
  • Do you want clean electrons powering your life while paying a lower price for electricity than you do today?

New York has a choice to make

New York politicians have a choice to make.

They can continue to claim to desire clean electricity options for New York City and to want to create jobs while undermining achieving these objectives through driving high-cost financing, private ownership, for deepwater offshore wind farms that — due to the cost implications of these choices — will take an extremely long time to develop.

Or, they can decide that they truly do wish to boost the economy while reducing pollution through leveraging LIPA/NYPA to finance publicly the development of shallow-water wind farms.

A note

Almost certainly, the assumption that the wind turbines should be in deeper waters and over-the-horizon is driven — in no small part — by a desire to avoid NIMBY-ite opposition to wind farm development.  As part of a decision-making to pursue lower-cost and lower-risk near shore alternatives, New York (and other communities) should invest in research to discover paths to ameliorate (or eliminate) this challenge.

For example, if there are 10 viable (in terms of wind resources, connections to the grid, etc …) locations, perhaps LIPA/NYPA could decide to pursue two and have these ten communities ‘bid’ to participate.  Bidding would not mean paying to play, but defining what benefits that they would like to see for their community from the development: perhaps lower-cost electricity for residents and businesses close to the wind farms, money for community development, or funds to support engineering scholarships for students from the community.

By providing direct linkages from project development to community benefits, may “NIMBY” could become “IMBY, P” (“In My Backyard, Please”).

Another note …

Of course, these are not the only obstacles preventing sensible deployment of renewable energy (and even energy efficiency) across the global economy.  Here are just a few others …

  • Externalities as non-so-hidden subsidies: Pricing in externalities (e.g., pollution) on all energy sources would change the game for renewables. Coal-powered externalities might, for example, be costing Americans >10 cents per kilowatt hour and including these (very real, but paid for by someone else) costs into electricity bills would make clean electrons far more attractive in every market space.  Sadly, such including these very real costs into energy billing is not an easy political fix.
  • Entrenched interests:  The fossil fuel industry is the richest on the planet and is spending significant resources to prevent disruption of their profit model.  This ranges from funding climate change disinformation institutes to seeking to unduly burden renewable energy projects with extra charges (such as what Dominion Virginia Power is seeking to do with residential solar in Virginia).
  • Perception / Behavioral: Despite mass adoption of iPads and cell phones and …, “new” is often hard for institutions and individuals to adopt.  In the face of mass deception from entrenched interests, there are misperceptions of renewable energy options and their viability to support energy requirements.  Another perception challenge is quite interesting — renewable energy technologies and business models are rapidly progressing.  The ‘price’ of solar is dropping, for example, at over 10% per year.  Thus, the ‘buyer’ faces a legitimate dilemma: Do I buy today or wait until I can buy better at a lower cost ‘tomorrow’?  At least for ‘large’ buyers (such as what NYPA and LIPA should be), the answer should be: invest in deployment of today’s systems while creating the infrastructure and ability to deploy tomorrow’s systems more efficiently.
  • Financial return models:  Financial modeling often works against renewable energy systems. As wind, solar, and hydropower have zero fuel costs, their major costs are upfront: construction.  Putting aside the above discussed challenge of high-priced financing, there is the challenge of ‘discounting the future’.  Clean energy options offer guarantees for tomorrow’s and next-decade’s prices, which is something that coal or natural gas does not do.  There is tremendous value for predictability and stability, however individual thinking and many business models highly discount this sort of benefit. And, too often, financial modelers will assume near fixed energy prices (since they are so unpredictable, let’s just use today’s prices as our planning factor) and heavily discount the risk of future price increases, which makes fossil fuel energy options look better than better accounting methodologies would conclude.
  • Taxation policies: In a multitude of ways, taxation structures often favor polluting energy options. Here is one example: Electricity prices are, in the United States, an expense to be deducted in that tax year. And, for producers of electricity, fuel purchases are also then-year expenses directly deducted from revenue before taxes.  However, renewable energy (and energy efficiency) is a capital expense — often deducted on a depreciation schedule over many years.  In the total LCOE, this actually lowers the net present cost of more polluting energy sources in comparison to renewable energy systems.
  • Subsidies: Beyond subsidizing fossil fuels with our children’s health and future prospects, there are extensive tax, legal, and other subsidies that distort the market space in favor of fossil fuel energy options.  These range from coal moving on railroads built on land granted for free decades ago to royalty payments for coal/natural gas from Federal lands that are well below real market value for the resources.
  • And …

In other words, there are a myriad of challenges for deploying renewable energy systems and not simply the question of financing costs, ownership structure, and deployment model.

Yet another note …

The actual price of the wind electrons is actually only part of the equation.

  • Real-world experience has shown that fixed price renewable electricity has an interesting impact on the electricity market — reducing the number of peak hour pricing incidents when intermittent power (wind or solar) surges strong during periods of high demand. In Germany, for example, this impact translated to an overall reduction of 15 percent on electricity charges.
  • Distributed energy production reduces risks of electricity disruption by, among other things, lowering stress on the transmission and distribution system.  This also contributes to reducing peak electricity prices since electricity transmission efficiency typically is lower during serious peak periods (the combination of high temperatures and seeking to maximize electricity throughput through wires drives higher line losses).

These very real and significant benefits are almost uniformly ignored in the discussion of “price”

Photo credits:

  • Taco White, wind turbines on horizon, Bergen Holland, NL
  • Andrew MacPherson, kids on beach at Jordaan, Amsterdam, NH, NL
  • Bilfinger, installation of wind turbine foundation, North Sea
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Tags: Energy · wind power

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