CO2 Reduction from Energy Storage

Introduction

For my first graduate school environmental analysis class project, I wanted to measure the emissions reduction that energy storage could provide. This class focused on Life Cycle Analysis (LCA). This measures the emissions and pollution of a product or energy source over its entire lifecycle. In the past I’ve looked at various aspects of energy storage. Measuring the effects of energy storage on greenhouse gas emissions seemed like the perfect combination of these two areas.

SB700 CA Energy Storage Mandate

I chose to focus on the SB700 bill in California that passed the Senate and is currently postponed for the Assembly until next year. It’s a fairly straightforward mechanism to offer $1.4 Billion in the form of rebates to energy storage devices. It would run from 2018-2027 and be funded by fees to customers as most energy programs are through an increased rate base. It will be carried out through the California Energy Storage Initiative program. The general premise as described is to –

“The distributed energy resource technology shifts onsite energy use to off-peak time periods or reduces demand from the grid by offsetting some or all of the customer’s onsite energy load, including, but not limited to, peak electric load.”

and

“Make energy storage mainstream”

There are a few biggest uncertainties with the biggest being how much will be offered for each device or MWh? I’ll leave this question alone since I’ll only be focusing on the overall effect of the bill. Looking at the text of the bill, there are a few important points to note:

  1. There is an additional 20% available for products manufactured in the state of California.
  2. Must use existing transmission and distribution systems.
  3. Must be made available to all ratepayers.
    -This point and the previous point are a big deal as they don’t allow for distributed energy that is not connected to the grid. This propogates the centralistic nature of the grid allowing less independence for individuals. It also doesn’t support storage in more disconnected sites.
  4. “Dispatch capable”
    -This is a concern becuase financial incentive may or may not be in-line between the owner and utility. There is a disconnect between who is paying for the storage (customers) and who is receiving the benefit (utility or CAISO).
  5. Success based on reduction in GHG emissions, and other emissions.
    -If this is the core goal of the $1.4 Billion, it’s worth investigating how much of an impact can be had. This is the core question of my research investigation.

Does Energy Storage Reduce Greenhouse Gas (GHG) Emissions?

Set-up

This is an important question because although energy storage is hailed as the savior of solar and wind, it isn’t immediately apparent that adding storage will immmediately lead to a reduction in GHG Emissions. This is because:

  1. Storage is not a source of energy itself. It still requires generation from somewhere and that primary source may generate greenhouse gases.
  2. Storage results in a loss in efficiency. The amount of energy you get out of a storage device is never as much as you put in. This means that you are having to generate more energy from somewhere.

The way that it can lead to decreased emissions is by changing the electricity production bundle in a positive way. After a little research on CAISO operations, it becomes apparent that the first step in doing this is by reducing the curtailment of renewables. Curtailment is happening in CA when the grid is not able to properly use all the renewable energy being produced. The following two graphs show when this is happening by month –

Curtailment-monthly

and by hour –

Curtailment-hour.png

Analysis

The overview of my analysis is to define how much CO2 is produced in a day based on a typical energy mix profile and then compare that to an energy mix profile with a greater percentage of solar.

To start, $1.4 Billion can buy you 3.5GWh of storage at a price of $400/kWh. Since I’m taking a focus on taking advantage of solar and wind being curtailed, I measure the curtailment size per day in the maximum month of June to be: 85,000 MWh / 30 days = 2,833 MWh (2.83 GWh) per day. This is the limit of the size of energy that can be moved since it’s the smaller of 3.5GWh and 2.83GWh. I randomly pick a day when deciding the amount of energy California uses in a day to be 620 GWh. Dividing the 2.83 GWh stored curtailment by the 620 GWh daily use gives .456% storage size as percentage of daily use. This can be re-attributed from fossil-fuel to wind and solar. The renewable energy being curtailed and wasted during the day can be stored until the peak load hours of the afternoon. The .456% storage size percent of daily use and 620 GWh daily use will be used as the inputs in GREET.

GREET

GREET

GREET is a Life Cycle Analysis (LCA) analysis tool developed by Argonne National Labs. It By analyzing the inputs and production that goes into producing a product, generating energy, or operating a vehicle, it outputs numbers on emissions and pollution. In regards to energy, it’s a fairly straightforward process of setting the percentage source mix of generation, distribution pathways, and the amount of energy. GREET then outputs pollution quantities.

Plugging in the daily production of 620 GWh and using the base electricity generation mix that GREET assumes, I get a pollution level of 206,282 tons of CO2. In my increased storage case, I reduce coal and NG by .228% each (.456% / 2), and increase a solar plus storage source .456%. This source includes a 80% battery efficiency pathway. This results in 204,165 tons of CO2 produced. In a third case scenario, I assume that storage costs are reduced to $200/kWh making the total storage size 7GWh. I assume that this is able to be fuly used because there is also increased solar or wind made available. This best case scenario gives a result of 201,022 tons of CO2. The percentage generation mix in this scenario is shown in the following pie graph.

CA Generation Mix

The results of the analysis are summarized in the following table. The columns contain the carbon output in a day, how much carbon is saved over 15 years, and the cost of that carbon reduction based on the $1.4 Billion.

Scenario Storage Size tCO2 tCOReduced over 15 years Cost per tCO2
Base Case 0 206,282
Storage 2.83 GWh 204,165 11,590,575 $120
Storage Best Case 7 GWh 201,022 28,798,500 $49

As you can see the $49-$120 cost to reduce a ton of CO2 is in the low to middle range for the estimate of the social cost of carbon. Based on these assumptions, storage can be an effective mechanism for reducing GHG emissions when properly coupled with clean energy sources.

Reflection

There are a few caveats about this analysis. The biggest is that it makes some gross simplifications. Storage is very complicated as to the effect that it can have, but I employ it in a simplified manner in order to keep things simple when studying its effects. There are many different ways to get value from storage that are more complicated than hourly energy shift. How the storage is employed can make a big differnet as to the carbon reduction effect it will have.

The other uncertainty comes from the input assumptions I used. I tried to make reasonable assumptions and research the numbers used; however, many of these numbers have a wide range or are difficult to estimate such as curtailment or daily energy use. Others numbers such as the cost of storage continue to fall and change quickly.

More important than the exact numbers is the understanding of the mechanism by which storage is able reduce carbon emissions. Storage is able to reduce carbon emissions in spite of the downfalls of reduced efficiency and the fact that it is not itself a source of generation. As more solar and wind come onto the grid with falling prices, storage will be able to ensure the reliability of the grid with reduced GHG emissions.

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Wwoofing et Énergie Propre: Travailler dans un vignoble français, une leçon pour les énergies propres

 

Cet été, j’ai travaillé dans un vignoble, dans le sud de la France. C’était pendant les deux semaines avant de commencer un programme de Masters en Politique de l’Environnement. Je voulais connaître une expérience différente de celle du simple touriste, améliorer mon français, découvrir comment faire le vin, et rencontrer de nouvelles personnes. Ce fut une excellente expérience, lors de laquelle j’ai accompli tous ces objectifs. Néanmoins, après réflexion, je me demande si cette expérience de Wwoofing a un lien avec les études sur l’énergie que je m’apprête à commencer.

Qu’est-ce que travailler sur un vignoble a à voir avec l’énergie propre ? Qu’est-ce que les vignes, le processus de fabrication du vin, et le mode de vie d’un vigneron nous enseignent-ils ? Est-ce que mon expérience a un lien avec l’énergie propre, ou, est-ce que c’est un exercice contraint et ces connections n’existent pas ? En réalité, je pense que faire du vin et développer les énergies propres sont deux actions très similaires. Ils consistent tous deux en un processus simple mais complexe : vivre en harmonie avec la terre, tout en intégrant les problèmes, dont les plus importants ne sont pas économiques. Encore plus, l’expérience de mon Wwoofing dans ce vignoble peut nous enseigner quelque chose de profond, comme la nécessité de faire évoluer les mentalités. Il y a beaucoup à apprendre des vignes.

Simple, Mais Complexe

Les vendanges

Les deux sont simples mais complexe. Faire du vin pourrait se résumer à ça : presser le jus des raisins et attendre. C’est tout ! Concernant l’installation d’énergies renouvelables, la technologie existe. Donc nous devons simplement décider l’utiliser. Mais en même temps, produire du vin est incroyablement complexe. Depuis le champ, le développement des raisins est affecté par la quantité de soleil, la taille des vignes, la qualité de la terre, et les plantes environnantes. Il faut ensuite, avec l’expérience, décider du mélange (ou non) des cépages et dans quelle proportion pour chaque cuvée. Le temps de fermentation est contrôlé en mesurant la température avec un thermomètre, et le taux de sucre et d’alcool avec un mustimètre. Inutile de décrire que la complexité se poursuit jusque dans la dégustation du verre de vin… De même, le réseau électrique est extrêmement complexe. Les opérateurs du système doit contrôler tous les générateurs et les transformateurs, afin de fournir la quantité précise d’électricité demandée. A cette complexité s’ajoute celle des renouvelables. Et plus, il y a considérations dehors de l’ingénierie qui inclut la coute, les principales sociaux, et la monopolie. Des questions complexes rendent difficile l’intégration d’énergie solaire, éolienne, ou autre.

Harmonie avec la Terre

Les legumbres

Le deux exigent que nous vivions en harmonie avec la terre. Si nous prenons soin de la terre, la terre va prendre soin de nous. Tailler, désherber, et cultiver sont les efforts à fournir pour obtenir de la nourriture à manger et du vin à boire. C’est un échange avec mère-nature. De même, il est nécessaire d’effectuer une maintenance régulière pour avoir un système électrique robuste et fiable. Et puis, nous devons prendre soin de l’environnement pour réduire nos émissions de carbone. Sinon, le réchauffement climatique s’accélérera encore, avec toutes les catastrophes qu’il entraînerait. Ainsi, développer les énergies solaire et éolienne offre la possibilité d’agir en harmonie avec l’environnement. Utiliser la force du soleil et du vent n’émet pas de carbone. Le système électrique doit fonctionne en harmonie avec la nature.

Résoundre les Problèmes

Nettoyant

Les deux soulignent l’importance de résoudre les problèmes. La capacité à reconnaître un problème et à le résoudre est essentiel au vignoble. Si le tracteur est en panne, mieux vaut le réparer ou tu vas transporter les vendanges du champ à la grange seau par seau. Plus sérieusement, il est nécessaire de garder un œil critique. Lors de mon séjour, pendant les vendanges, il s’est avéré qu’une parcelle avait produit très peu. Le patron a reconnu qu’il y avait un problème, et plutôt que de laisser produire cette vigne de mauvais raisins, il a pris la décision de les déterrer pour en replanter de nouvelles. Cet exemple montre que certains problèmes exigent la prise de décisions difficiles. De même, il est nécessaire de reconnaître le problème du réchauffement climatique dans le monde. Celui-ci est la première étape, et la plus importante. La suivante est ensuite d’agir. Là, il y a beaucoup d’options : créer un système de plafonnement, de mandats sur les émissions carboniques, ou encore de subventions pour les énergies renouvelables. Le chose important point est prendre action à résoudre les problèmes.

Les indicateurs du Qualité de Vie

Dîner

La vie sur un vignoble nous apprend à mesurer la réussite en dehors des indicateurs économiques. Le plus important est la qualité de vie. Mesurer le niveau de bien-être peut être en relation avec la proximité avec la nature, ou de qui on s’entoure. La France reconnaît déjà d’autres indicateurs de qualité de la vie (La Strategie de France). Dans le monde de l’énergie, les mesures, en dehors du prix, sont les émissions carboniques, la résilience, et le pouvoir de marché d’une entreprise. Mieux expliquer tous les avantages de l’énergie solaire influencera l’achat de panneaux solaires. Et mettre l’accent sur le niveau des émissions carboniques et leur coût social nous aidera à réduire ces mêmes émissions. Nous devons suivre les indicateurs de bien-être avant de suivre les indicateurs économiques.

Changement des Modes de Penser

IMG-20170919-WA0005

Le développement des énergies propres ne peut avoir lieu dans un profond changement des modes de penser. Suffisamment profond pour imaginer une façon différente, inventer une nouvelle voie. En me rendant dans ce vignoble, j’ai découvert une façon différente de vivre. Je me suis ouvert à une culture différente, à une autre façon de gagner sa vie à partir de la terre, et une manière différente de nouer des relations. Un esprit ouvert permet de voir les choses sous une nouvelle lumière, et est utile dans tous les domaines de la vie. Cette capacité à se remettre en question et à accueillir le changement est particulièrement importante lorsque l’on considère la rapidité d’évolution des systèmes énergétiques. On doit avoir la prévoyance voire le problème de réchauffement du monde qui viennent et la capacité imaginer un système électrique nouveau. Le changement des modes de penser est le leçon plus que je prend de ma expérience

How Cities are getting to 100% Renewable Electricity

Map of cities going 100%
http://www.go100percent.org/cms/index.php?id=18

There are a lot of cities making commitments and promises to go 100% Renewable Energy. Each has a different plan, timeline, and way of doing it. A map of these cities is at the 100% Renewable Site. These include such cities as San Diego, Madison, as well as Chicago announcing to power city buildings with green energy. This is very great to hear because local initiiatives can make a big impact. But, how do they do this? How does a city ensure 100% of the electricity they consume is from clean power sources? Cities are not in the business of providing electricity, and they buy electricity directly only for their buildings.

I’ll look at several case examples of how cities are getting to 100% renewable energy. There are different ways city governments can exert their influence to control where their electricity comes from. In all the examples, they must work with a conglamoration of players to get it. This includes utilities, non-profits, govenrment agencies, and corporations. They also need buy-in and a willingness from the citizens to make it happen. Many of the best examples are profiled by the Sierra Club in their Cities are Ready for 100% Clean Energy 10 Case Studies Report. Here are several case examples of actions being taken to get it done.

  1. Enact policies

One of the most direct ways cities governments are controlling the electricity use in their jurisdictions is through legislative action. This can be laws on a wide variety of issues. One of the most common is controlling demand through energy efficiency mandates. Greensburg, KS is a city that was destroyed by a tornado in 2007 and rebuilt their eletric grid with a focus on clean energy. One of the first actions they took was to require all buildings over 4,000 square feet to be LEED Platinum certified. Energy efficiency measures are a low-hanging fruit way for communities to control their electricity use.

Other policies help to promote clean energy uptake by its residents. Another action Greensburg took was to enact a Net Energy Metering (NEM) ordinance for its residents. Allowing rooftop solar to sell excess electricity back to the grid makes solar an economically more attractive option. While NEM is a very contentious issue, Greensburg made a decision to require it. In doing so, it put a priority on solar adoption. These are only two examples of policies being put into place to promote residents to make green decisions.

  1. Renewable Portfolio Standards

Renewable Portfolio Standards (RPS) are a mandate for a certain percentage of the mix of electricity to come from renewable sources. It must be followed by the utility or energy provider in the jurisdiction. It is a direct way of municipalities to dictate what the energy mix of their area looks like. It is most often done at the state level, but can also be enacted by cities. This option is being explored in Rochester, MN. The cities goal is to be 100% renewable by 2030. Part of this plan is to have a 25% RPS by 2025. 68% of its residents support requiring energy to be sourced by renewables. The cost for these resources is then incorporated into the rates.

  1. Power Purchase Agreements (PPAs)

Power Purchase Agreements are long-term contracts to buy electricity for a fixed price and amount. The benefit is that they take the risk out for both the buyer and seller. The downside is that market prices can greatly fluctuate from the original contract; although, contracts can be set-up differently to conteract this. PPAs are often needed to ensure financing gets raised for renewable energy projects. By contracting PPA, cities can gaurantee where their electricity is coming from.

Georgetown, TX secured long-term low electricity prices when it signed a 25 year deal. It was done because it was both a low-cost and reduced risk option making it very attractive to the city. PPAs are best suited for places where renewable electricity is readily accesible and the areas utility set-up is conducive to it. The unique set-up of this city owning the utility allowed it to control where the utility gets its electricity.  It could also be done by larger scale individual operations such as city buildings. It would be a good option for the city of Chicago in supplying electricity for their buildings. PPAs are a great way to control where electricity is sourced from.

  1. Buy a dam

When a city has a municipally-owned utility they are given more control over the utility. The utility is still controlled through a utility commision. One example of the control government can have over a municipally-owned utility is with the city of Burlington, VT buying a 7.4 MW hydroelectric plant on the Winooski River. This is able to provide 25% of its electricity needs. It is complemented by other souces, but it is one example of a city taking a more direct jump into how it sources its electricity. Municipally-owned utilities allow cities greater control over generation purchases.

  1. Community Choice Aggregation

Community Choice Aggregation is a very innovative way for the people of the city to come together to source their electricity. The city organizes to buy power in bulk wholesale from producers. This allows them negotiating power to dictate terms of the deal. This was done by San Jose where the city hired a private partner to develop, finance, and operate the program. It is very similar to community solar projects where communities come together to make a deal for solar power projects. Community Choice Aggregtion puts cities deeper into the details of sourcing their electricity, but also allows them greater control.

  1. Renewable Energy Credits

One relatively easy way that cities can claim 100% renewable energy is with Renewable Energy Credits (RECs). RECs are claims on renewable generation created when a source generates clean energy. They are essntially an accounting method of tracking renewable energy generation. One example of a city doing this is Grand Rapids, MI. Although, they get some kickback because the buyer can still be physically getting their electricity from any source. One of the issues brought up with RECs is that a buyer can buy RECs for 24 hours worth of their demand when a clean source would never be able to provide electricity for all of those hours. One answer to this dilemna is that there are different levels of RECs with different specifications. The important thing is that RECs support renewable energy by providing an additional revenue source and making them more economically viable. RECs allow cities to claim their electricity is sourced from renewable generation.

Summary

All of these ways of accomplishing 100% renewable energy require cities to understand their unique situation and exert their influence within these constrains. Each uses a combination of these tools to better control from where their electricity is generated. It isimportant that they work with other stakeholders including utilities, residents, developers, and other agencies. All of these cities in Ready for 100% Clean Energy 10 Case Studies Report also have a clear plan and an office in charge of the plan. It usually includes a current state with baseline emissions data, and action steps for getting to the future state.In the end, this long journey starts with the starting step of deciding to go 100% Renewable.

 

Other Sources:

Repowering Port Augusta – http://media.bze.org.au/Repowering_PortAugusta.pdf

Presents options calculating capacity and financing. IRENA – http://www.irena.org/menu/index.aspx?mnu=Subcat&PriMenuID=30&CatID=79&SubcatID=267

Energy Roadmaps – http://www.greenpeace.org/eu-unit/Global/eu-unit/reports-briefings/2010/7/Comparison-EU-Energy-Roadmaps.pdf

 

10 Points on Global Warming: The Carbon Drawdown USGBC Panel

Wednesday, May 10th, I went to USGBC Chicago‘s panel discussion in Chicago about climate change, Defining Carbon Drawdown: What it Means for Chicago and the World. The focus was on the book Carbon Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming by Paul Hawken. The book presents realistic and attainable solutions to climate change. Up for debate was which efforts to focus on in Chicago. The panel included 4 speakers from different environmentally-focused positions in the Chicago area.  Everyone agreed that more needs to be done, but there was considerable debate about what to prioritize.

People

Jenny Carney was the moderator and she did an excellent job directing the conversation. Jenny is a principal at YR&G working to improve the performance of existing buildings.

Jenny Carney
Jenny Carney – http://www.yrgxyz.com/bios/jenny-carney/

The panelists were:

Note: I’m using Chatham House Rules and not attributing who the idea came from partly cause I don’t want to mis-attribute and I don’t want to misrepresent what anyone was saying.

10 Key Points

  1. CO2 doesn’t go away

    When this idea was first mentioned, I thought I was missing something because I knew that CO2 is used by plants in photosynthesis. Everyone learns this in elementary school biology. However, the idea is that that there are natural sources and sinks of CO2. These main sinks of the ocean and forest are already part of the natural cycle of CO2. They can’t compensate for additional human produced CO2. This increase in CO2 can effect the equilibrium for hundrends of years having a profound effect on the climate. This is explained by Archer himself in the paper Atmospheric Lifetime of Fossil Fuel Carbon Dioxide the idea is succinctly summarized in the Nature Reports article, Carbon is Forever.

  2. Priority on refrigerants

    Different greenhouse gases have different sized potentials for global warming. The Global Warming Potential (GWP) is a measure of how much a gas will cause the earth to warm over a period of 100 years. It takes into account 1. how much heat they absorb and 2. how long the molecule lasts in the atmosphere.  GWP is measured in units of CO2 equivalents (CO2e) since it is based off CO2‘s impact which has a factor of 1. Refrigerants such as hydrofluorocarbons and perfluorocarbons can have up to 1,000 times more impact on the atmosphere than CO2.

    GWP
    GWP – https://ecometrica.com/assets/GHGs-CO2-CO2e-and-Carbon-What-Do-These-Mean-v2.1.pdf
  3. Food as a Focus

    Agriculture is both a contributor and victim of global warming. According to the Consultative Group on International Agricultural Research (CGIAR), it makes up one-third of all global greenhouse emmisions. These include sources from agricultural production itself (tilling the soil releases N2O), fertilizer manufacture, supply chains, refrigeration, and indirect deforestation. This means that changes in this sector can have an outsized impact on overall greenhouse gas emissions.

    agricultureGlobalWarming
    Agrigulture’s Impact on Global Warming – https://www.theatlantic.com/business/archive/2014/05/breakfast-cereals-to-get-more-expensive-thanks-to-climate-change/371281/

    It is of concern for agriculture because it will also feel an outsized impact of the efects of global warming. The same report estimates impacts o f decreased productivity of up to 10%-20% by 2050. This will require adjustments to what kind of crops are planted, how crops are planted, and when crops are planted.

  4. Business Cajoling vs. Laws

     

    There was some contention about whether it was better to approach the problem through government or business. On the government side is the impact of Corporate Average Fuel Economy (CAFE) transportation standards and the Clean Power Plan. The point was made that these will be necessary to reach the 1.5% °C limit to global warming called for by the Paris Agreement. CAFE standards set mpg efficiency minimums for car company’s fleet of vehicles as a whole. The latest was put forth a standard of 54.5 mpg by 2025. Phase 2 of the standard could save 1.1 billion tons of CO2 and 2 billion barrels of oil. This not only goes a long way to achieving the Paris Accord, but also saves consumers money at the pump. This is under threat from Trump who ordered a review of this proposal. Final decisions might not come until April 2018.On the other side was the argument to pressure businesses by highlighting the business risks. The idea is that if you convince companies that global warming will impact their business not on a long-term timescale, but in the short-run, they will be much more likely to change their behavior. This is being done by the Corporate Climate Alliance. They are lobbying companies to recognize these risks and incorporate them into their decision making. There is the slight problem of “Why me?” Why should any one company make any change when others won’t? This is a game theory issue where everyone needs to commit to action. It is the same issue countries are facing at a global community level.

  5. Rebates not relevant to middle class and below

    The middle class and below are not able to take advantage of the majority of energy efficiency financial savings. There are two main reasons for this.

    1. The first is that most energy efficient products are more expensive. So, even after the savings, these products are more expensive thn the least-cost option. The lower-income consumer will choose the lowest-priced option which is less efficient. This continues to exarcerbate wealth inequality.
    2. The second reason is because the lower-income tend to be renters. In the owner-rentor scenario, there is a disconnect with energy efficiency investing. Why should an owner make the investment when they don’t pay the utility bill? And why should a rentor pay for the investment when they won’t be around long enough to re-coup the investment?
  6. Specific, Measurable, Long-term Solutions

    The solutions that are come up with need to be specific, measurable, and long-term in order to be valueable enough to have an impact. This is true for any endeavor. Being specific ensures that the change is tangible, real, and clear. Measuring ensures that it happens, creates accountability, and gives a metric for its impact. Long-term solutions are non-frivolous and are make a real change.

  7. Funding – Impact Investors

    Investors can have a major impact on how companies behave. One mechanism for this is for corporate boards to put pressure on management to address climate change risks. One recent example of this is Occidental Petroleum’s Board voting to have the company assess risks to climate change against management’s recommendation. “The vote puts the oil-and-gas industry on notice”, said The Nathan Cummings Foundation. Expect to see more boards to raise the issue of climate change impact to companies which will make it harder to deny.

  8. Reach out to high schoolers to do advocacy  (idea from audience member)

    During the Question and Answer period an audience member had the idea to mobilize high schoolers to raise awareneess about global warming. The idea was that they are a large and energetic group that could be put to work. They could be motivated by different incentives including gaining extra-curricular experience to put on their college applications. The speakers agreed this is a good idea, but was already being done as part of programs such as USGBC’s EPIC Challenge. This is a program intiated by USGBC to engage, empower, and educate all the communities across Chicago to make an impact on carbon drawdown.

    EPIC Challenge
    EPIC Challenge – http://www.usgbc-illinois.org/wp-content/uploads/2016/10/USGBC-Illinois-Epic-Challenge.pdf
  9. Chicago to use 100% renewable energy in city buildings by 2025

    The mayor of Chicago, Rahm Emanual, and the city of Chicago announced that city buildings will be 100% renewable powered by 2025. Other cities have announced similar goals for the entirety of their cities. Only the three cities of Aspen CO, Burlington VA, and Greensburg KA have achieved the status so far. Yet, there are many more who are working towards this goal according to Go 100% Renewable. It’s tough to say exactly what their measure of being 100% renewable means because there will always be times when renewable energy can’t be had.  Oftentimes, carbon offsets can be bought to say you are using renewable energy. It will be interesting to see what the city’s plan all includes because putting solar panels on top of the Shedd Aquarium to get a 50% reduction in energy use is different than getting to 100% on all buildings.

  10. Chicago using LED streetlights influences other municipalities to do the same

    Chicago’s choice to use LEDs in streetlights influences other municipalities to also use LED streetlights. Part of this is other municipalities recognizing the benefits and feasability of doing this after seeing Chicago do it. Another part of this is the buying power a big city has to make LED lights cheaper. Since Comed was picked to buy and install the lights, Comed will then go to other municipalities with better deals on LEDs to stay consistent and buy in bulk.

Final Advice:

The event brings up the two most difficult problems of fighting climate change.

1. We need effective, tangible solutions.

2. We need a shift in mindset that gets public support of solutions.

These are two, very different fronts, but we need people working on both of them. In summary:

  1. Actually do something.
  2. Don’t do it alone.
  3. Tell someone you did it.
  4. Speak language of people.

The Book

Carbon Drawdown Book
Carbon Drawdown Book – https://www.instagram.com/p/BTCcfpYF2Tl/?taken-by=usgbc_illinois

More information about the book is available on the Carbon Drawdown site.

Gamma Hedging: Energy Storage vs. Financial Options

 

Abstract :

Gamma is a change in the price of a derivative with a change in underlying at a changing rate (2nd degree). In the electricity markets the phenomenon is seen that when electricity prices deviate from the expected price, the load to serve also deviates. This correlation creates a compounding effect on losses. Historically, in vertically-integrated regulated markets, the utility owns all the peaker plants necessary to cover these events. In de-regulated markets, these functions are broken up, but connected through options gamma hedging. A novel alternative I propose is to use energy storage to cover these events. This is a novel use for energy storage distinct from arbitrage, solar combination, or back-up applications. This paper compares the costs of hedging against gamma events using energy storage vs. financial options.

Introduction

Gamma is the second degree price change of a derivative with the price change of an underlying (The Greeks). This creates exponential moves in the derivative as compared to the underlying. In the electric industry, this is seen in the set-up of a retailer having to buy electricity from the wholesale market and sell to consumers at a fixed rate. The retailer is able to hedge their predicted load with a future to match the fixed rate and predicted load. This is a fairly straight forward delta hedge which ensures a fixed profit as prices (and only prices) deviate. The problem is that this doesn’t take into account a deviation of volume of load from what was predicted. The econo-physical fact is that there is a correlation between volume and prices. When load is higher than expected, prices react by rising, and when load is lower than expected, prices drop. This is supply and demand economics. I refer to times when both price and load highly deviate from expected as “gamma events”.

The profitability is governed by the product of the volume of electricity and the difference in retail and wholesale rates. The volume (V) and wholesale price (p) can deviate from expected which creates financial risk (Equation 1- Profitability).

 

Profitability
Profitability – Oum, Y., Oren, S., & Deng, S. (2010). Volumetric Hedging in Electricity Procurement. Retrieved from http://www.ieor.berkeley.edu/~oren/pubs/Volumetric2005.pdf

We can see the effects of this risk in Figure 1- Gamma Risk which shows the company’s obligatory load to serve short position, the future hedge long position, and the deviation from the $0 P&L gamma position. The problem is that the retailer feels the negative effects on profit/loss in both directions. When prices drop, they are forced to sell back excessive electricity at depressed prices. They’re protected against price drops, but not for the decreased volume. On the price up side, they are forced to buy additional electricity at higher prices. Once again, they are hedged against price increases, but no longer at the proper volume. When both are combined in the profit equation, this creates a downward droop in their P&L.

 

Gamma Risk
Gamma Risk – Meerdink, E. (n.d). Hedging Retail Electricity. Hess Corporation. Retrieved from https://www.slideshare.net/EricMeerdink/euci-sep2011-ericmeerdink

In trying to compensate for this gamma risk, various solutions have been proposed. In vertically-integrated energy markets, the utilities own the peaker power plants necessary for these events. The principal alternative is to cover distinct deviations from expected by building an options portfolio at strike prices form at the money. This is best described by Oum, Oren, and Deng (Oum, Oren, & Deng, 2010). Other alternatives include using weather options, or volumetric option as proposed by Lloyd Spencer (Spencer, 2001).

One novel solution that has not been examined is to use energy storage for gamma events. I have not been able to find any instances of energy storage being used exclusively for lower probability events of high price & load or low price & load.  This would be distinct from more common storages uses of price arbitrage, solar panel combination, or black-out back-up (RMI). The question is whether energy storage is a cost-effective alternative to options gamma hedging.

Scenario/Assumptions

I analyze the two alternatives from the viewpoint of a retail electricity provider. It must provide electricity to customers at a fixed rate and buy it on the wholesale market. It owns no generation sources itself.

Data comes from PJM-West wholesale market. Data for these wholesale prices can be found at PJM’s website (Wholesale Prices). Load to serve comes from PJM’s estimated load (Estimated Load). These are hourly data points for the whole year of 2016. Predicted load and price were created by taking random normal deviations at a 15% scale. The correlation between load and price is .5 for both predicted and actual. This is a bit low of a correlation for gamma risk to take place, but will suffice for this analysis.

The cost of gamma risk comes from a volume which deviates from expected. Price deviations at load volumes consistent with what was predicted are already covered in the theta (futures) hedge that was put on. This means that the gamma hedge to be concerned with is the price deviations multiplied by load deviations, Equation 2 – Gamma P&L.

Gamma P&L Equation
Gamma P&L Equation

In an effort to keep things consistent, I only consider deviations that create 95th percentile profit losses. These are when the load and price deviation have the same sign to create a loss. I measure deviations in terms of dollar moves (strikes) of actual prices from predicted prices (at-the-money). The energy deviations are then calculated at each strike point.

95th Percentile Load to Serve
95th Percentile Load to Serve

Financial Options Hedging

The cost of the financial options hedge can be constructed by finding the cost of calls and puts as strike deviations from the at-the-money strike. The at-the-money strike can be considered to be the price of the future since the option delivers into the future contract. The future contract can be considered to be expected or predicted price. A generalized schedule of this options cost can be prepared based on a day for options two months out. I use options on PJM Western Hub Real-Time Peak Fixed Price Future prices on March 23, 2017 for May 2017 contracts (ICE Options Report) – Figure 2 – Options Prices.

Options Prices
Options Prices – ICE Options Report. (n.d.). Retrieved from ICE: https://www.theice.com/marketdata/reports/143

The difference between expected and actual price is the same as an options strike deviation from the at-the-money price telling us historically which options strikes would have been needed. Finally, the load deviation tells us how many contracts would have been needed. As we pay for these whether they are used or not, this is the total cost of hedging 95th percentile gamma moves or greater with financial options.

Excluding 95% of the hours ensures we are not wasting our time on small profitability losses, and it ensures we are not studying a battery for a cyclical time-of-use arbitrage scenario. Everything can then be re-categorized by summation into the strike distance from at-the-money. The costs incurred are then split between the cost of the option itself and the cost of the underlying electricity at the price that the option affords us the right to buy it. This is taken as the predicted price for each strike multiplied by the summed absolute value of load deviations.It can be seen in that the cost of the option itself is minimal in comparison to the cost of electricity.

Options Hedging Cost
Options Hedging Cost

Energy Storage Hedging

It is proposed that energy storage can help serve unplanned, un-hedged load and lower the down-side risk. By charging at lower cost times in preparation to serve unplanned load, battery storage can mitigate having to buy extra electricity at high wholesale prices. This scenario would entail operating a battery with a different algorithm than typical time-of-use, back-up, or ancillary support models.

The cost of using a battery is comprised of two costs, the cost to charge the battery and capital costs. I calculate the cost to charge the battery as the 20th percentile price of all energy. This is combined with the energy across the whole year of 1,224,474 MWh. An estimated efficiency loss of 15% gives a yearly cost of electricity at $20,149,936.

The O&M cost includes the cost of the battery itself and maintenance costs. The longest 95th percentile gamma event only lasts 3 hours with 2,843 MWh needed across these 3 hours. This largest demand is the size of the battery needed. This power and energy scale would only be achievable with a distributed storage network. The capital cost of a flow battery is $372-$1,115 ($743 avg) per kWh (Lazard). Adding in a battery lifespan of 20 years, the Capital cost is calculated to be $105,607,809.41. For purposes of simplicity, this doesn’t included maintenance cost or inflation. The combined cost of the battery is $133,496,994 or $109 per MWh.

Battery Analysis
Battery Analysis

Conclusion

Comparing the costs of covering 95th percentile gamma events using financial options vs. batteries entails calculating the cost of electricity and options price or capital costs for each. The significant drivers are that the battery is able to use a much lower cost of electricity because it can charge when prices are lower compared to the options price of electricity being based on predictions. However, the capital costs for batteries are significantly higher than the options price cost. This makes energy storage the higher cost option. Even with cheaper hydro-electric capital costs of $300 per kWh, the total energy storage cost per MWh of $57 is higher than options.

Overall Analysis
Overall Analysis

Future Work

There have been quite a few factors that have been left out or oversimplified including costs of batteries, cost of electricity for the battery, and options prices. Another consideration is that a 2,843 MWh battery deserves a qualification. This would have to be distributed storage. It would also be more likely that anything past 99th percentile losses wouldn’t be planned for. A more detailed economic analysis taking into account the time value of money, maintenance costs, and tax considerations that use better qualified inputs would also be valuable.

Future work includes doing a back-test that would better model the actual cash flows in each hour.  In practice, this situation could also be done by owning the batteries and selling options. You could gain money by collecting on the price of options, and then when a gamma event happens, you could pay the option with the income generated from selling the battery reserves onto the market. This would be a similar analysis from a different agent’s perspective.

Works Cited

Estimated Load. (n.d.). Retrieved from PJM: http://www.pjm.com/markets-and-operations/energy/real-time/loadhryr.aspx

ICE Options Report. (n.d.). Retrieved from ICE: https://www.theice.com/marketdata/reports/143

Lazard. (n.d.). Lazard’s Levelized Cost of Storage Analysis. Lazard. Retrieved from https://www.lazard.com/media/2391/lazards-levelized-cost-of-storage-analysis-10.pdf

Meerdink, E. (n.d.). Hedging Retail Electricity. Hess Corporation. Retrieved from https://www.slideshare.net/EricMeerdink/euci-sep2011-ericmeerdink

Oum, Y., Oren, S., & Deng, S. (2010). Volumetric Hedging in Electricity Procurement. Retrieved from http://www.ieor.berkeley.edu/~oren/pubs/Volumetric2005.pdf

RMI. (n.d.). The Economics of Battery Storage. Retrieved from http://www.rmi.org/Content/Files/RMI-TheEconomicsOfBatteryEnergyStorage-FullReport-FINAL.pdf

Spencer, L. (2001, Oct 1). The Risk That Wasn’t Hedged: So What’s you Gamma Position? Fortnightly Magazine. Retrieved from https://www.fortnightly.com/fortnightly/2001/10/risk-wasnt-hedged-so-whats-your-gamma-position?page=0%2C0

The Greeks. (n.d.). Retrieved from thismatter.com: http://thismatter.com/money/options/greeks.htm

Wholesale Prices. (n.d.). Retrieved from PJM: http://www.pjm.com/markets-and-operations/energy/real-time/loadhryr.aspx

Clean Energy has a Cost: The IL Nuclear Bill

The recently passed IL Energy Bill is a good thing for the environment and yet, a perfect example of the costs involved with clean energy. Whether the costs be in dollars, nuclear dangers, or income inequality, clean energy is not free energy. The Illinois House and Senate recently passed SB2814 to re-vamp the Public Utilities Act. Now, it must go on to the Governor’s office and Rauner is expected to approve it. The main provision is that it keeps the Clinton and Quad City Nuclear Power Plants in operation. This ensures a combined 2,032 MW of clean power will remain online at a price of $235 million. The contention is that the subsidy will make electricity more expensive and flies in the face of capitalism. I’ll explain why this bill is a good thing for clean energy and why the costs are worth it.

Illinois targets
http://www.webpal.org/SAFE/state/IL/il_nuclear

Green Advantages

The decommissioning of Exelon’s Clinton and Quad City power plants would have brought 2,032 MW of baseload power off the grid. This is a consistent source of clean power which stays on more reliably during the winter when other plants have problems. According to Illinois’ energy profile, this energy would be replaced by 36% coal and 13% natural gas. At a CO2 output rate of 2,070 lbs. CO2/MW burning bituminous coal and 1,220 lbs. CO2/ MW burning nat gas, taking these plants offline would have added 7.7 million tons of CO2 every year.

One alternative I asked myself is what if those dollars were spent on wind farms? Applying the $235 million to wind energy at a cost of $1.3 – $2.2 million per MW of capacity would have bought you 107 – 181 MW of wind. This is not nearly enough to make-up for the 2,032 MW coming offline from the nuclear plants. This doesn’t even take into account the fact that other sources would still be needed to compensate for the intermittency of wind. So, not only would this scenario not nearly make-up for the power the nuclear plants supply, but you would also need the same amount of capacity anyway for when the wind doesn’t blow. The $235 million spent on wind would be grossly inadequate in compensating for the power needs of the nuclear plants coming offline.

The Costs

Let us not be mistaken, this clean nuclear energy comes at a cost. In dollar rate terms, estimates range from $.25 to $4.54 on monthly bills. Although this may be less than building brand new nuclear plants (politically intractable anyway), it is not negligible. This cost is worth it as I see it as being closer to the lower amount.

Another cost is with nuclear safety. This includes costs of both a potential catastrophe and what to do with nuclear waste. This is where it really gets into a dilemma for environmentalists with the ultimatum choice between nuclear or carbon. An ethical dilemma has never been so apparent. Once again, the right choice was made. While the nuclear threat is real, it is largely sensationalized. Engineering and policy has improved to protect against accidents, and it is relatively small to the slow, steady, and un-publicized effects that pollution is having.

The third cost is the contribution to economic inequality. In simplest terms, this is because any rise in electricity rates will disproportionately affect the low-income by virtue of energy bills being a larger percentage of total expenses for the low-income than it is for the high-income. Economic inequality is a massive problem with it being the highest now in the United States than it ever has been. I would have liked to see a more socially just allocation of the costs; even though problems of fairness arise when you segregate utility rates based on economic levels. This was almost done in earlier versions of the bill with a demand charge for peak energy used, but the final version did not include this in order to get the bill passed. While some say that a demand charge is more of a burden for the low-income, I only see it as a benefit because the high-income and businesses will naturally use more peak power and be charged more. I invite more information on this, but overall, more can be done for a more just distribution of the utility costs.

The ultimate answer to all this is a carbon tax which brings in the external costs of carbon. Since this is politically impossible, effort must be put in to policies which do have value. Only policies which are law have worth.

All in all, this is a very clear example of the costs associated with real clean energy decisions. We must be willing to pay on a dollar basis, potential nuclear threats, or even economic inequality. Those who disagree are living in the clouds which are soon to experience further global warming without the practical solutions that this bill brings.

 

Spreadsheet of analysis here

5 Non-Environmental Reasons for Clean Energy.

electric-pick-up-truck
http://news.pickuptrucks.com/2011/12/electric-pickup-truck-to-debut-at-2012-detroit-auto-show.html

    I realize that “non-environmental reasons for clean energy” is a bit of an oxymoron since clean energy automatically means environmentally friendly by definition. However, it’s worth exploring all the reasons for the technologies that comprise clean energy, particularly solar and wind generation.

Clean Energy needs backing from multiple supporters. Environmental reasons for clean energy have provided the initial and most apparent impetus to drive adoption of clean energy sources such as wind and solar. Clean energy’s economic case has been analyzed and made to work for numerous projects. The long-term economic case for clean energy can even be made through social cost of carbon studies as is being done at EPIC at the University of Chicago. However, a vast majority of clean energy development and growth has not been driven by economic or environmental reasons.

If we explore some of these driving factors, we can better understand the catalysts that can spur more clean energy and get more people to support its adoption. This cultural buy-in is ultimately what’s needed as the first step to driving the implementation of policies and projects. It can create a multi-pronged approach to push renewable, distributed, and clean energy forward. The liberal greenies already have good reason to support clean energy. The benefits need to be framed up in a new way for other groups to support it. It needs to be sold in a way that doesn’t contain the green associations. The Clean Energy Group recognizes in their Solar Marketing Strategies Report that environmental reasons may not be the most compelling reason.

  1. Jobs – One of the biggest reasons given in political contexts for clean energy is the jobs it can provide. Most of the new job growth in the energy industry has come from solar and wind projects (Bloomberg). The argument is made in the state political setting that if pro-clean energy policy aren’t put in place, states can miss out on jobs. These jobs can come in the form of system installers, project developers, or hardware manufacturers. States that support the industry will be the ones to reap the benefits. As E&E News says, “Get on board now with solar and wind or miss out on jobs”.
  2. Energy Independence – America is very proud of its independence. Clean energy can serve as a manifestation of this ideal. Solar and wind energy sources are largely distributed sources. This means that they have a natural independence from the grid. Residential solar in particular takes the form of home-cited solar panels that can decouple a homeowners reliance on the grid and the powers that be who control this system. This is particularly attractive to large groups of people who want to take control of how their system operates. Integrating a battery into the system can give even more control of when and how you pull energy from the grid. Clean Energy Conservatives in North Carolina recognize this as an appealing trait for people.
  3. Decrease Dependence on Foreign Oil – Going along with personal energy independence from the system is global energy independence. This comes in the form of developing independence from foreign oil. While America’s foreign oil dependence has waned with the development of domestic shale and the oil price drops which reflect this, the US still imports 8 million barrels of oil a day. Reducing foreign oil dependence reduces foreign diplomacy complications, keeps money out of the hands of detrimental interests, and helps develop the domestic economy. In HelioPower’s blog, Nicolette puts it succinctly saying, “Reducing the oil we buy from around the world keeps our money here and out of the hands of some seriously anti-American countries”.
  4. Price Stability – Inherent in solar and wind’s cost structure is that it has no marginal costs. While natural gas, coal, and oil have variable fuel costs that continue to rise, clean energy does not have this risk of rising fuel costs. It certainly has other risks, such as when the sun will shine and how much the wind will blow, but the only cost is its upfront capital cost. The Clean Energy Group cites rising fuel cost risk in fossil fuels as a major argument when marketing clean energy. It is attractive for people to not have to worry about how much they will be paying for electricity.
  5. Religious/ Moral – Even if the environment is not of the highest importance to a person, but devotion to religion and God is, there is good reason to support clean energy. Pope Francis recently released the encyclical Laudato si supporting the protection of the planet. The 42,000 word document addresses how we are supporting our “common home”. This is an excellent way to garner the support of people who’s top priority is religion, thus diversifying the interest groups advocating for clean energy.

All in all, there are more diverse ways to market clean energy other than environmental reasons. This gaining of support from diverse interests can better drive policy, funding, technology, and adoption of these sources.

While the decision to install clean energy is ultimately an economic decision for many people, support from multiple sources can affect the economics of that decision. A Solarcity survey cites “saving money” as the biggest reason at 82% of the respondents for homeowners to buy  clean energy products and services. These final economic decision is affected by the cultural support for technology development and policies. Thus, this cultural buy-in is the first step to creating a new, clean energy world.