Resource Documents: Economics (165 items)
Documents presented here are not the product of nor are they necessarily endorsed by National Wind Watch. These resource documents are provided to assist anyone wishing to research the issue of industrial wind power and the impacts of its development. The information should be evaluated by each reader to come to their own conclusions about the many areas of debate.
Author: Electric Reliability Council of Texas
The Electric Reliability Council of Texas (ERCOT) is the independent system operator (ISO) for the Texas Interconnection, encompassing approximately 90% of electric load in Texas. ERCOT is the independent organization established by the Texas Legislature to be responsible for the reliable planning and operation of the electric grid for the ERCOT interconnection. Under the North American Electric Reliability Corporation (NERC) reliability construct, ERCOT is designated as the Reliability Coordinator, the Balancing Authority, and as a Transmission Operator for the ERCOT region. ERCOT is also registered for several other functions, including the Planning Authority function.
In June 2014, the U.S. Environmental Protection Agency (EPA) proposed the Clean Power Plan, which calls for reductions in the carbon intensity of the electric sector. The Clean Power Plan would set limits on the carbon dioxide (CO₂) emissions from existing fossil fuel-fired power plants, calculated as state emissions rate goals. For Texas, EPA has proposed an interim goal of 853 lb CO₂/MWh to be met on average during 2020-2029, and a final goal of 791 lb CO₂/MWh to be met from 2030 onward. EPA calculated the state-specific goals using a set of assumptions about coal plant efficiency improvements, increased production from natural gas combined cycle units, growth in renewables generation, preservation of existing nuclear generation, and growth in energy efficiency.
ERCOT has evaluated the potential implications of the proposed Clean Power Plan for grid reliability and conducted a modeling analysis of the impacts to generation resources and electricity costs in the ERCOT region. Based on this analysis, ERCOT anticipates that implementation of the proposed Clean Power Plan will have a significant impact on the planning and operation of the ERCOT grid. ERCOT estimates that the proposed CO₂ emissions limitations will result in the retirement of between 3,300 MW and 8,700 MW of coal generation capacity, could result in transmission reliability issues due to the loss of generation resources in and around major urban centers, and will strain ERCOT’s ability to integrate new intermittent renewable generation resources. The Clean Power Plan will also result in increased energy costs for consumers in the ERCOT region by up to 20% in 2020, without accounting for the costs of transmission upgrades, procurement of additional ancillary services, energy efficiency investments, capital costs of new capacity, and other costs associated with the retirement or decreased operation of coal-fired capacity in ERCOT. This summary report describes the results of ERCOT’s analyses.
Summary of ERCOT Concerns with the Clean Power Plan
ERCOT approaches this analysis from the perspective of an independent grid operator in a competitive market which has achieved significant success in using competition to drive efficient outcomes. Existing market policies and investments in transmission in ERCOT have incentivized market participants to maximize the efficiency of the generating fleet and develop new technologies including renewable generation. With recent investments in transmission, more than 11 GW of wind capacity have been successfully integrated into the ERCOT grid. The ERCOT region maintains a forward-looking open market and provides affordable and reliable electricity to consumers in Texas.
ERCOT’s primary concern with the Clean Power Plan is that, given the ERCOT region’s market design and existing transmission infrastructure, the timing and scale of the expected changes needed to reach the CO₂ emission goals could have a harmful impact on reliability. Specifically, implementation of the Clean Power Plan in the ERCOT region, particularly to meet the Plan’s interim goal, is likely to lead to reduced grid reliability for certain periods and an increase in localized grid challenges. There is a natural pace of change in grid resources due to advancing cost effective technologies and changing market conditions.
This pace can be accelerated, but there is a limit to how fast this change can occur within acceptable reliability constraints. It is unknown based on the information currently available whether compliance with the proposed rule can be achieved within applicable reliability criteria and with the current market design. Nevertheless, there are certain grid reliability and management challenges that ERCOT will face as a result of the resource mix changes that the proposed rule will induce:
- The anticipated retirement of up to half of the existing coal capacity in the ERCOT region will pose challenges to reliable operation of the grid in replacing the dispatchable generation capacity and reliability services provided by these resources.
- Integrating new wind and solar resources will increase the challenges of reliably operating all resources, and pose costs to procure additional regulating services, improve forecast accuracy, and address system inertia issues.
- Accelerated resource mix changes will require major improvements to ERCOT’s transmission system, posing significant costs not considered in EPA’s Regulatory Impact Analysis.
This study shows that in 2012, the total value of public interventions in 2012 in energy (excluding transport) in the EU-28 was €2012 113 billion: 10 billion to coal, 5 to natural gas, 7 to nuclear power, 8 to biomass, 15 to solar, 10 to on-shore wind, 2 to off-shore wind, and 5 to hydro.
The levels of support do not reflect the proportional use of each energy source, where, e.g., coal represented 17.5% of energy consumption, natural gas 23.5%, nuclear 13.5%, and all renewables 11%.
Thus, per mtoe (million tonnes of oil equivalent) consumption, coal received 34 million € per mtoe, whereas all renewables received 216 million € per mtoe.
In terms of electrical energy, 1 mtoe is equivalent to 11.630 TWh. Therefore, coal’s 17.5% share of all (1,682.9 mtoe) energy consumption is 294.5 mtoe, which is equivalent to 3,425 TWh. Coal is used for more than electricity generation, however, and as seen in the next figure, it accounted for 27% of total 3,295 TWh electricity production, or 889 TWh – that is, only 26% of coal use was for electricity generation, and 26% of the subsidy to coal comes to less than 9 million € per mtoe.
The next figure shows the share of each renewable energy source in the generation of electricity. Wind accounted for 26% of the total 799 TWh of electricity from renewable sources, or 208 TWh.
Putting these data from disparate parts of this extensive report together, coal received a subsidy of 2.9 € per MWh of electricity generated. Wind – both on-shore and off-shore – received 57.7 € per MWh of electricity generated, or almost 20 times the subsidy of coal.
By similar calculations, the 2012 subsidies for electricity generation were 0.70 €/MWh for natural gas and 2.36 €/MWh for nuclear.
Author: Combs, Susan
Natural gas generation contributes the largest share of Texas electricity, particularly during peak demand. During off-peak times, when demand can be a half or two-thirds of the daily peak, many power plants stand idle; operating reserves are needed, however, when demand increases again, or to react to sudden losses of generation or transmission problems caused by equipment failure or bad weather.
On days when temperatures peak in the 60s, non-residential customers use more than two-thirds of the power generated in the ERCOT region. On the hottest Texas summer days, electricity demand by residential customers quadruples to more than half of the state’s total load, peaking in the late afternoon. This requires thousands of megawatts of natural gas generation to be fired up, a flexibility not available with wind generation that is dependent on weather conditions.
Renewables need conventional power backup
Diversifying Texas’ energy portfolio has put wind and solar generation on the grid but has created a new quandary for grid managers: where can power be obtained quickly when the wind stops or clouds reduce solar yields?
- When wind turbines produce less electricity than predicted, grid operators must compensate by relying on dispatchable power plants that can ramp up production quickly to meet demand, and ramp down due to rapid increases in wind generation.
- Daily forecasts can give a general expectation of renewable output, but quick-ramping gas turbines have to be on standby to backstop renewables that are expected to produce only a fraction of their full operational capacity.
- For summer 2014, even though Texas had more than 11,000 MW of total wind capacity, ERCOT counted on just 963 MW of wind generation being available. The lack of wind generation during summer peak demand means that energy planners, such as ERCOT, have to ensure that a lot of flexible natural gas generation is available to meet the reserve margin.
- Wind producers occasionally have to curtail their operations during high generation due to localized transmission infrastructure constraints; this could be alleviated if economical local energy storage technologies existed.
- Although peak solar energy production tends to coincide with peak demand, Texas’ limited solar capacity leaves CREZ transmission lines underutilized when the West Texas wind typically is lowest in early afternoon.
- The reserve margin ordinarily meets the needs of the electricity market because grid operators can dispatch flexible generation to meet higher- than-expected demand or unexpected supply loss. When the operating reserves are insufficient, customers are asked to reduce consumption through demand response programs that reduce the load. In a worst-case scenario, forced rolling outages would be implemented.
Wind generation is lowest during the summer months when energy demand is highest.
The proportion of electricity generated from wind during the hottest summer day of 2013:
- 4 A.M. – Wind generation peaks when overall demand for electricity is lowest.
- 4 P.M. – Wind generation is near its lowest when overall demand is at its highest.
Wind has reliability challenges
Renewable energy poses reliability challenges. The leading concern is whether it can provide electric power every second of every day. Major renewable energy sources are fundamentally limited in how, where and when they can be used; the sun doesn’t always shine and the wind doesn’t always blow, so natural gas backup generation is needed.
Variability and intermittency
Wind power is tied to weather and thus produces variable energy output. Wind variability creates complications for grid operators working to integrate wind power into a grid not historically designed for fluctuations.
Historical wind generation data reveal that the peak production for the majority of Texas wind generation is at night and does not align well with the peak electricity demand during summer afternoons.
- Non-coastal wind turbines generated only about 20 percent of their installed capacity during summer peak-demand hours, while coastal wind production was more than 50 percent of capacity in 2013.
- Non-coastal wind represents 85 percent of both total installed wind capacity and annual wind generation in the ERCOT region.
Transmission lines for wind
The 2005 Texas Legislature approved a major transmission project, the Competitive Renewable Energy Zones (CREZ), to carry mostly wind energy generated in West Texas and the Panhandle to high-demand cities. The project was forecast to cost less than $5 billion but ballooned to more than $6.9 billion to build nearly 3,600 miles of transmission lines and dozens of substations.
The completed project has capacity to transmit about 18,500 MW of electricity to major load centers in ERCOT — that would serve more than 4 million Texas homes.
Consumers will pay for CREZ lines carrying wind energy for 15 to 20 years. The PUC estimates residential customers will pay roughly $5 to $7 per 1,000 kWh used. Based on the average household’s electricity use, that will cost $70 to $100 per year. An ERCOT official told the PUC in August 2014 that further expansion of the West Texas transmission grid could cost an additional $2 billion.
An ERCOT study is under way to provide new and improved transmission from Panhandle wind generation that extends outside its service area. The Panhandle Renewable Energy Zone could provide transmission lines (expanded from the existing CREZ) that would transport electricity to the populated areas of Texas where demand is increasing. No price tag has been identified for these new transmission lines.
The PUC has begun to study whether future transmission infrastructure costs should continue to be paid by all ratepayers or whether electricity generators — specifically renewables that are located far from where the energy is used — should be required to fund any of the costs.
September 23, 2014
Texas Comptroller of Public Accounts
Author: Nelson, Donna
RE: Open Meeting Agenda Item 29; Project No. 42079; Discussion and possible action on electric reliability; electric market development; ERCOT oversight; transmission planning, construction, and cost recovery in areas outside of ERCOT; SPP Regional State Committee and electric reliability standards and organizations arising under federal law.
As discussed at the April 17th open meeting, I would like to open a project to look at ERCOT’s prospective system upgrades, ancillary services, and the transmission planning process related to renewable resources, as well as problems that have arisen as part of the CREZ build-out. The unique characteristics and often-remote locations of renewable resources pose challenges to the electric grid, and those challenges are increased as the volume of wind on the system increases. For example, some of the series compensated transmission lines that are part of the CREZ build- out can cause sub-synchronous oscillation issues that must be resolved in order to avoid damage to the transmission grid and generation resources. The Panhandle region is currently experiencing so much interest from wind developers that there is a concern that the overall system strength will be negatively affected unless the infrastructure is updated.
The Federal Production Tax Credit was started in 1992 in order to spur a developing technology and allow it to gain the momentum necessary to make it commercially viable. Now, 22 years later, there can be no doubt that renewable technology-especially wind and solar-are mature industries. Every year when Congress extends the Production Tax Credit we are told that it will be the last year. Although the credit expired in December, the Senate Finance Committee recently approved a $13 billion, two-year renewal. I fear that this credit will once again be extended.
The Federal Production Tax Credit distorts wholesale electric markets, including the ERCOT market. With wholesale rates that hover around $40 per MWh in ERCOT, a federal program that pays wind generators $23 per MWh ultimately destroys the economic underpinnings of the wholesale competitive electric market. As wind installations continue and wind capacity in our market becomes a larger percentage of ERCOT capacity, not because it makes sense from an economic standpoint but because investment is driven by a federal government subsidy, our market faces the very real possibility of losing base load generation. As former Senator Phil Gramm stated in a December 25, 2012 Wall Street Journal article: “The costs of wind subsidies are extraordinarily high – $52.48 per one million watt hours generated, according to the U.S. Energy Information Administration. By contrast, the subsidies for generating the same amount of electricity from nuclear power are $3.10, from hydropower 84 cents, from coal 64 cents, and from natural gas 63 cents.”
While this Commission has no ability to change what Congress does, we do have an obligation to Texans to periodically review whether our rules appropriately assign cost to those who cause those costs. I would like to explore the costs of system upgrades, the costs to maintain and operate the current system, and the allocation of those costs specifically related to renewable resources.
Some of the transmission lines built as part of CREZ include series compensation that has the potential to cause sub-synchronous oscillation if the series capacitors that have been installed are taken out of bypass mode. This issue is a consequence of expanding the system to access resources that are located far from load centers. This Commission needs to decide how to address the existing problem, how to avoid this problem in the future, and how to resolve the cost allocation issues o f mitigating this risk.
Due to the amount of wind generation that we are now expecting on the transmission lines in the Panhandle, stability concerns and weak system strength will present significant challenges in that area. ERCOT has released a study that recommends system upgrades to address this issue. The transmission facilities in the Panhandle region installed as a part of CREZ included reactive equipment to support 2,400 MW of wind. As we see wind online in excess of 2,400 MW, the system strength will suffer. Under weak grid conditions, a small variation of reactive support results in large voltage deviations. These potential grid stability issues raise fundamental policy questions. For example, should we ask electric customers to fund further investment in the transmission system to improve stability or should some of the risk be borne by generators? When I review the PURA provisions that approved construction ofthe CREZ lines, it is obvious to me that the Texas Legislature intended that wind developers should have skin in the game but we need to further flesh out what that means as wind generation becomes an increasingly large percentage of installed capacity in the ERCOT market.
ERCOT is currently evaluating an ancillary services redesign, which gives us an opportunity to examine our current mix of services, those contemplated for the future, and the costs associated with these products. One of the reasons that ERCOT is exploring potential improvements to ancillary services is because some new resources expected to be added to the ERCOT system bring with them additional challenges. Given ERCOT’s changing resource mix, I would like to look at whether there are ancillary services costs that are incurred specifically because of the unique nature ofrenewable resources.
The ERCOT Board instructed ERCOT to review its transmission planning process. One issue
that I would like to explore here at the Commission is whether the production cost savings test, most recently adopted by the Commission in March 2012, is appropriate for analyzing the
benefits of transmission projects, especially projects to address transmission limitations and voltage stability mitigation that will be needed to address a system heavily weighted with wind generation, with a production cost ofzero.
I request that Commission Staff open a project with the title “ERCOT Planning and System Costs Associated with Renewable Resources.” If we encounter major policy issues in this rulemaking that we believe cannot be resolved by PURA, we can seek Legislative guidance by including these topics in our Scope of Competition report.
I look forward to discussing this with you at the open meeting.
TO: Commissioners Kenneth W. Anderson, Jr., and Brandy D. Marty
FROM: Chairman Donna L. Nelson
DATE: May 29, 2014