Utility Regrets (Large)

...and growing.

The electric utility industry functions within the framework of federal, state and local legislation and regulation. The legislators and regulators are influenced by the renewable energy industry and by numerous environmental advocacy groups. In this environment, the utilities have been required to connect wind and solar generation to the grid and to accept all of the electricity generated by these intermittent renewables on a priority basis whenever it is available.

This intermittent renewable electricity displaces output from conventional electric generators owned and operated by the utilities and their wholesale suppliers to the extent that it is available. However, the conventional generators are still required to provide power during periods when the renewable sources are not generating. Therefore, the fixed costs of the conventional generation are largely unaffected, but the revenue from generation and the associated variable costs are reduced. The net result in an increase in the cost of the power produced by the conventional generators.

Increasing renewable generation further decreases the cumulative output of the conventional generators, but does not reduce the conventional generation capacity required to satisfy grid demand when renewable generation is unavailable. In fact, increased electric demand from customer load growth and fuel switching would increase the capacity of conventional generation required to support the grid even as renewable generation capacity increased, though a portion of the increased conventional capacity requirement could be offset by the addition of electricity storage.

Utilities have agreed to accept the output of renewable generation as produced, without smoothing to eliminate the frequent fluctuations in renewable output or storage capacity sufficient to render the renewable generators dispatchable. This approach reduces the apparent cost of the renewable electricity, but increases the cost and complexity of utility operations.

Utilities could have and likely should have fought to require renewable generators to provide smoothed and dispatchable power meeting the same requirements as their own and their wholesale suppliers’ generators. That approach would have reflected the full cost of renewable generation, which would have been several times the cost of “source of opportunity” generation.

This issue will become critical as renewable generation proliferates and conventional coal and natural gas generators are required to discontinue operation under federal mandates over the next 13 years. The grid support currently provided by the conventional generators would have to be provided by electricity storage, while the stability provided by the inertia of the large rotating turbine generators would have to be provided by power electronics.

Electric utilities earnings are based on an allowable rate of return on net physical plant in service. Electric utility physical plant is typically 70-80% generation. Displacement of utility coal and natural gas generation with third party generation reduces utility earnings potential. This is currently causing utilities to seek to invest in renewable generation capacity, as well as to focus on the investment required to provide electricity storage to support the grid through periods of low/no renewable generation. These investment requirements will be substantially increased by the federal push for “all-electric everything”.

It appears highly unlikely that pursuing this path would result in the long-promised reduced energy costs.