For those of us participating in the global electricity market, 2016 was an astonishing year. It was the year that renewables (wind and solar) not only beat “price parity” with traditional forms of electrical generation (coal, oil, diesel, natural gas, and nuclear), but also dominated the global market for new electricity capacity installations.
In the first quarter of 2016, renewables accounted for 99% of new capacity additions to the United States electrical grid according to Cleantechnica. And while that leveled off to 43% in the first half, we ended the year with almost 17% of total US electricity generated coming from renewables. Wind power surpassed hydropower in 2016 and was by far the lowest cost new generating resource. Total solar capacity in the US surpassed 35 GW, essentially doubling in one year, and globally it topped 300 GW with almost 100 GW of new modules manufactured (there is a slight lag in the time that modules are manufactured and when they go into operation producing electricity).
With all of this progress, many analysts and news reports began to discuss the “irreversibility” of renewables as the dominant form electrical generation in both the US and across the globe, and with good reason. There are many strong macroeconomic forces at work that will be hard to turn back.
More than a decade ago, “dominant design” was established in renewables with the “horizontal axis wind turbine” (with three blades attached horizontally to a tower high above the ground) and the silicon photovoltaic cell representing solar. As the design variability disappeared, more money was spent on incremental innovations and building scale for the equipment in this space. With each successive generation of wind turbine, the size got larger, the generator and gearsets within them got better, the towers got taller, and better controls were applied. The results were higher and higher net capacity factors with resultant lowering of the delivered cost of electricity. In solar, the main drivers were economies of scale where every successively larger foundry manufacturing modules and its inherent innovations allowed for cell and module process to fall precipitously, more than 80% in the last 6 years and more than 25% in 2016 alone. The inherent law for solar is that for every doubling of production output, there is a 20% reduction in cost.
As the industry grows, the modules and their resultant electricity get cheaper. With wind already being lower cost than natural gas and coal today, further renewable prices reductions make coal the much-too-expensive form of electricity in most markets. There is no “war on coal”, only shifting economics favoring better forms of lower cost electricity. Over the near term, natural gas also beats coal and provides a “dispatchable” resource that is more efficient than coal, but its long-term value will be as the interim “battery” to assure reliability of a large-scale grid with lots of renewables.
Up to the point of price parity of renewables, market adoption was driven by a variety of market “stimulants,” specifically renewable portfolio standards set out by states and economic incentives through the federal government through a financial instrument known as tax equity in the US and feed in tariffs (essentially providing a higher-than-market electricity price for the producer to incentivize them to build more projects) in many other parts of the world. In the parts of the US, such as Texas, where renewables (specifically wind) were incentivized below price parity, utilities began to adopt or demand increasing levels of renewables to keep their wholesale electricity costs low. With low cost wind, Texas utilities and market makers have arranged for the purchase of almost 20 GW of wind power in the state. Solar is finally approaching price parity with peak electricity in Texas, and we are seeing demand increase significantly. ERCOT, the independent system operator in Texas, predicts that solar will replace coal creating between 17 and 27 GW of new solar generation over the next decade supplying the power-hungry state’s peak energy demands.
But it is not just utilities that are buying this electricity. Major technology corporations such as Google, Facebook, Microsoft, and Amazon are adopting renewables for their data center operations and more traditional companies such as WalMart and Dow Chemical are adopting to power their operations. These companies value low-cost, low-carbon electricity with stable pricing while major fossil users appreciate the natural-gas-risk offset of renewables.
Communities—both through their municipal utilities and city purchases—are buying increasing amounts of renewable power for the same reasons as corporates and utilities—low, stable prices. They also are buying to match community values of clean air, clean water, and low-carbon pollution. With increasingly low-cost rooftop solar options, standardized installations, and better financing options, more consumers will be buying solar for their homes directly and bypassing their utilities where they can.
Policy Becomes Inconsequential
Once economic incentives are phased out, renewables will compete purely on economics and their market attributes. The only thing holding it back are differences in policies from state to state. Today’s rules are written around the concept of electricity generation as a large central plan and many distributed users (similar to the mainframe analogy in computing). As technology changes more toward “peer-to-peer” or “cloud computing” as an analogy for electricity, state rules will need to be updated. It is very likely that the technology itself will drive the new rules in markets opening them up for more competition and more opportunities for renewables. It then becomes a virtuous cycle allowing more and more adoption and creating greater electric system resilience.
States will learn that they need renewables to be competitive with other states and will therefore adjust regulations and rules to promote renewables. States that need incremental amounts of new electrical generation can also absorb more renewables faster since they are more modular and take shorter period of time to permit, build, finance, and put into operation when compared to the large central stations they are competing with. Even states that don’t adopt renewables immediately will have a chance to benefit as they learn from other states and adopt more renewables as their capital costs continue to decrease.
Jobs, Jobs, Jobs
Because of its distributed nature, there are other economic opportunities from renewables including more jobs, local entrepreneurs, manufacturing, and stimulation of more energy-intensive industries that require low cost electricity. Today, there are more electrical jobs from renewables than coal, gas, oil, and nuclear combined. As more renewables are adopted in non-coastal states like Colorado and Iowa, many new manufacturing opportunities have emerged and grown to support the local renewable industries. As renewables become increasingly present in the mix, they lower the cost of electricity in the states where they are produced such as Texas and Iowa. This creates additional industrial opportunities lowering the output cost of products from inexpensive renewable electricity. Yes, there will be jobs lost from the legacy fuels and infrastructure, but the jobs created by renewable development, operations, manufacturing, and secondary industries formed around renewables will far exceed the jobs lost.
If the US Chooses Not to Lead, Others Will
We need to remember that the US is roughly 20% of the global market for energy. If the US fails to adopt renewables aggressively, other countries will continue to do so – building their economic advantage while the US falls behind. Given that we are a global technology innovator, established much of the technology for the wind and solar industries, have such tremendous demand for electricity, and frankly need to upgrade our power grid, the US stands to benefit from prioritizing renewables and the advanced energy infrastructure to optimize them. When we do so, we will not only create a 21st century energy infrastructure, but also job growth, local manufacturing opportunities, and once again assume a global leadership role.
We in Colorado are on the front lines of climate change. More than most states, we are already seeing the impacts of changing climate every day.
Warmer winters are threatening our ski industry, which could face up to $150 million a year in lost tourism revenue. Warming is also causing the devastation from the mountain pine and piñon beetles that are wreaking havoc on many of our forests.
A hotter, dryer climate will lead to more ruinous wildfires, like the Waldo Canyon and Black Forest blazes. And drought conditions and earlier snowmelt are putting strains on our farmers and ranchers.
But Coloradans are also on the front lines combating the climate crisis with our efforts to cut the dangerous carbon pollution that traps heat and fuels climate change. We’re getting more electricity from non-polluting sources like wind, and we’re cutting electricity demand with money-saving programs to stop wasting energy.
Crucially, this transition toward a cleaner electric system has caused no disruptions to customers. Our lights stayed on, the ski lifts are running, our factories and farms have kept humming. That’s an important lesson to share with the rest of the country — clean energy is reliable energy, less risky and volatile than the energy it is replacing.
It’s also a timely lesson because on Wednesday, the Federal Energy Regulatory Commission, which oversees the national electric grid, held a public technical conference in Denver to examine the impacts on electric reliability of the Obama administration’s proposal to fight climate change. The Clean Power Plan, due to be finalized this summer, aims to reduce carbon pollution from power plants 30 percent by 2030 by having utilities cut back on using power from the dirtiest coal-fired power plants and boost cleaner energy sources, like wind and solar.
Electric power plants are the single largest source of carbon pollution nationwide. Colorado was the first state to pass voter-approved state-wide goals to get more electric power from renewable sources like the wind and the sun.
Today, our renewables targets are the nation’s second highest. They’ve already created some 10,000 jobs and brought in millions of dollars for rural communities from leases and property tax payments. Renewables counted for more than 14 percent of our electricity in 2013.
The biggest utility, Xcel Energy, recently got permission from Colorado regulators to buy even more wind power because it is cheaper than natural gas.
Critics of the Clean Power Plan, including the coal industry, politicians and those who deny climate science and oppose any effort to reduce carbon pollution, are issuing alarmist warnings about blackouts and outages. But Colorado’s experience, and my own, show they are not only wrong, they ignore the many benefits of low-cost renewable energy in stabilizing energy supply.
My company, Brightman Energy, develops utility-scale solar and wind projects in Texas, Colorado and elsewhere. We’ve seen our renewable projects merge seamlessly into electric grids, providing uninterrupted, inexpensive power. Other states have deployed even more renewable power than Colorado without problems.
Contrary to the doomsayers’ dire accounting, the pollution-cutting targets set by the Environmental Protection Agency are both modest and achievable. EPA offers states great flexibility to meet their pollution goals by whatever combination of cleaner conventional power, renewables and energy savings makes the most sense.
At the Denver FERC conference, you were likely to hear utility bosses say they needed more time because the EPA plan is too ambitious. That’s a stalling tactic. Delay is unnecessary — the plan already sets a decade-long timetable for states to meet the goals.
Of course, states, utilities and operators of the regional electric grids will have to continue to do extensive modeling and planning to ensure the transition goes smoothly. But experience shows they are up to the task.
So when you hear sky-is-falling predictions, keep calm, and carry on producing cleaner energy to fight climate change.
Joel Serface, a Boulder resident, is co-founder and managing director of Brightman Energy LLC and a Rocky Mountains chapter director of the national nonpartisan business group Environmental Entrepreneurs (E2).”
Guest opinion — Boulder Daily Camera
By Joel Serface
POSTED: 03/08/2014 01:00:00 AM MST
As Coloradans, we have seen how wind energy is creating jobs and driving economic growth.
We know that making our buildings, appliances and equipment more efficient saves money and helps our environment.
And we know what happens to our climate if we don’t act.
It’s simply inconceivable, then, that Congress sat back and let critical tax policies for wind energy and energy efficiency expire at the end of last year. Congress needs to reinstate these critical federal tax policies — and do so now.
As an entrepreneur and investor, I know that smart tax policies can help both our economy and our environment. These incentives work. According to Environmental Entrepreneurs (E2), a business group I belong to, hundreds of clean energy jobs were announced in Colorado in 2013, thanks in part to smart federal and state policies.
Because of the wind energy Production Tax Credit (PTC), for instance, there were more wind projects under construction in 2013 than ever before.
Vestas Wind Systems is a prime example of why Congress needs to immediately renew the PTC that expired in December. Vestas recently announced it will hire hundreds of Coloradans at its plants in Windsor and Brighton after a surge of wind projects were announced. But when those projects are done, those jobs could be done too. After the PTC expired the last time, in 2012, Vestas was forced to lay off hundreds of employees because wind projects slowed dramatically.
Wind energy companies aren’t just creating manufacturing and installation jobs. They’re also helping keep family farms afloat in eastern Colorado by leasing land for wind turbines. And by creating a stronger, longer term market signal, more investment will become available to fund local wind technology companies such as Boulder Wind Power.
Like the PTC, recently expired energy efficiency tax incentives for buildings and appliances drive growth and jobs in construction, manufacturing and other fields while saving consumers money.
Nationwide, energy efficiency projects could save U.S. consumers $1.2 trillion and create up to 900,000 direct jobs by 2020, according to a McKinsey analysis.
Denver Mayor Michael Hancock realizes the importance of energy efficiency. He recently joined nine other mayors nationwide to announce a new project that promises to increase energy efficiency in commercial buildings, slash energy use, cut pollution, save money and create jobs. According to Mayor Hancock, the improvements from the City Energy Project will save as much as $51 million per year.
Local officials can only do so much, however. We need action from Congress on smart renewable energy and energy efficiency tax policies.
All of us have learned from droughts, freak storms and other extreme weather events that we must address climate change. We know we need to move to cleaner sources of energy that don’t pollute our air and water.
Extending smart energy efficiency and clean energy tax policies is a common-sense way to help both our economy and our environment. Congress should do so immediately, for the good of our state, our country and our planet.
Joel Serface is Managing Director of Brightman Energy.
I have been told that blogs somehow have more importance and greater connection when written in first person. I often tire of writing “analysis pieces” that seem cold, dry, and impersonal even though they are incredibly important. I somehow have been bottling up the need to write my personal perspective on where cleantech is today and why my opinions and actions in it are as well. It pretty much comes down to this…
I dedicated my entire career since business school to helping bring technologies to market and towards the birth and growth of the clean technology. I have been incredibly fortunate to have learned from the best at MIT in how to bring ideas from lab to market and got to work alongside some of the best technologies and companies while there in learning this trade. I then got to practice this in Silicon Valley with some of the best venture capitalists, best research universities and national labs, and was motivated by my experience being stuck in NYC on 9/11 to make my priority clean technology. I was fortunate to band together with like minds to form durable organizations, policy, and funding mechanisms that popularized and accelerated the growth of cleantech. I have led an enchanted life in being one of the early innovators and actors in this sector. But it was not enough.
I have long stated that technology innovation alone was not going to solve our shift to a clean energy infrastructure. My Silicon Valley compatriots, especially the ones that could risk their limited partner’s money into an arena they had no experience investing into, thought that if they built a cleantech company, it would be adopted as widely, quickly, and capital efficiently as their semi, software, and semi investments. Unfortunately this was a naïve assumption and I quickly harkened back to my Texas roots upon realizing this. The fact was that Texas is the energy expert and energy capital and that if the energy capabilities in Texas weren’t leveraged – project capital, project development, infrastructure deployment, industrial scalability, energy trading, and energy risk management – then we would not have sufficient expertise or capital to make this transition. So, I went back to Texas to see if I could bridge this divide. My tagline became “If Texas becomes a renewable energy state, then there’s hope for the planet.” So if we can show traditional energy companies and investors how to make money in new energy, they would move more of their money and expertise there.
I was well on my way to doing this when I took a side trip to Colorado with the invitation of Kleiner Perkins to be their Entrepreneur in Residence at the National Renewable Energy Laboratory. What I found at KPCB were the excesses of the Silicon Valley that I was trying to shift away from. It was a portfolio that had limited prospects for success and an attitude that “Texas doesn’t matter” – that (before the economic downturn) there would be so much follow-on capital that the masters of Silicon Valley alone could re-make the energy marketplace. At NREL on the other hand, there was tremendous resistance to want to commercialize technologies. I found there that indeed there were a tremendous set of incremental innovations that could lower the cost of renewables, but these should be broadly licensed to industry (an quickly and freely) in order to bring down their costs. There was a limited set of “disruptive” innovations that were potential game-changers in the energy marketplace, but needed 5-15 years each to mature to a point of being competitive. There were no venture capital firms at that time, including my employer at the time, that were organized and capitalized to invest into the long haul for these applications.
What to do? To fill the gap, I intended to set up a firm that crossed the divide between innovation and deployment, between California and Texas, leveraging maturation centers like NREL, Pecan Street Project, and others to accelerate demonstration and deployment. Unfortunately, we hit the market window at the worst time possible and I faced a divorce in the process. Therefore, this fund never came into existence. The beauty in this is self-reflection. For those of you who have been given the opportunity to completely re-evaluate everything in life through a traumatic life event, I found clarity, beauty, focus, and realization…
My realization was this: Technology investing alone was not going to turn the corner on averting climate catastrophe. What was needed were more large scale economic demonstrations that renewables are more cost effective today than coal, gas, or nuclear energy. I was fortunately invited by a friend and one of the architects of the Pickens Renewable Energy Plan to form a new renewable energy development firm called Brightman Energy. We quickly modeled and demonstrated that a fully-depreciated coal plant in Texas could be replaced at a lower cost (and with greater long term price stability) with a well-designed, geographically dispersed renewable energy portfolio. This also led me to realize that renewables should be the baseload energy of choice in almost any geography in the US with natural gas providing the balancing or storage mechanism (at least until DSM, efficiency, and other storage solutions became cost effective with natural gas). I also realized that Texas is the deregulated market of choice to demonstrate and scale these solutions – with the most advanced nodal market, transmission infrastructure, system wide preference for generation efficiency, efficient renewable energy trading market, and its own grid, Texas had already created the ideal market for renewables and had already become the largest renewable market in the US.
So where do I go from here? With Brightman, we are building the case and project portfolio for integrated renewable deployment at a scale that can replace coal or natural gas plants (or could take advantage of the latter in order to balance increasing levels of renewables). At the same time, I continue to look at other scalable business models, financial models, and deployment models that will accelerate renewable energy and clean technology deployment – things that will take huge slugs out of our carbon emissions and hopefully avert climate catastrophe. And, yes, I still love disruptive technology – I continue to watch the ones that I think will make the greatest difference on the planet, because they will and they will replace the first generation of massive renewable deployment at an even lower cost more pervasively.
Here is an interesting report sponsored by the Texas Clean Energy Coalition and delivered by Brattle Group asserting the Texas market is gas and renewables and have incredible complementarity. As I have priced out renewables and gas projects, I find the report misses a couple of key points…
- As renewable prices drop and as the ERCOT nodal market improves, renewables will increasingly be baseload energy (wind is the least expensive new form of energy in the market) and predictable peak (solar) with natural gas providing the firming capacity and ancillary services in the market. Think about natural gas as the battery for the renewable electricity market.
- Texas’ market is already dominated by natural gas electricity. Any additions to this will increase price volatility and increase long term rates versus investing into increasingly lower cost renewables.
- Both of these push coal off the system. There is expected to be 5,000 MW of coal retirements in coming years.
- The report ignores the water problems of Texas. Frankly we don’t have enough water in Texas for increased thermal load… this points us back to renewables. Now that the state is intervening by investing $2B in taxpayer dollars for water infrastructure due to “long term draught” (some Texans have a hard time saying climate change), there will be increasing prices of water which will also be embedded into the cost of electricity. Renewables require no water and will increasingly be favored in the ERCOT loading priority accordingly.
- The countercyclicality of wind presented in the report ignores the baseload nature of Texas Coastal wind that continues to ramp, decrease in cost, and provides baseload rates less than natural gas.
- The pricing of solar ignores 2012 numbers and predicted numbers of dropping solar prices. It is already out of date.
- If you are to compare apples-to-apples, then each of these need to have a comparable LCOE with embedded fuel volatility, water, environmental (yes, carbon prices), and decommissioning expenses embedded. If we did this today for a 25-year set of projects, renewables already win (caveat: wind blended intelligently with solar).
Texas with its own ISO (ERCOT), advanced nodal market, preference for generation efficiency,free market model, expansion of advanced transmission lines to renewable development areas will serve as a leading post-incentive market for renewable deployment and integration. Let’s see how this all plays out.
Over the next couple of months, I will begin sharing why I shifted from cleantech venture capital to large scale renewable energy development. Simply, it is too late in in the climate game to not go big. We need to take demonstrably large steps that are scalable and replicable to turn the corner on climate change. If you would like to see this at SXSW Eco 2013, please vote for my panel picker and stay tuned 🙂
What are the most important things to do in order to find your inner entrepreneur? Here are several points I have found in successful entrepreneurs I have backed and how I found my own inner entrepreneur.