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Renewable energy resources are a concept that is very appealing to me. Personally, I feel that any effort to reduce environmental impacts is a “Good Thing”. Now that I have disclosed my bias, let me change direction and say that most renewable resource economics analysis sounds like a policy statement, rather than a business plan, to me.
Recently I had the opportunity to spend a significant amount of time talking to members of a federal entity dealing with renewable energy. Their discussion of long run cost of power was very detailed. But they couldn’t answer the simple questions concerning the real option valuation of their product. This is a case I have seen in a number of places – the wholesale power operation has fully engaged real option valuation in its processes while the business development groups are still living in the DCFROR past. The same problem occurs with renewables.
For example, solar power advocates talk about the cost of produced power. However, the supply assurance of solar power is practically zero. Modeled as an option, the solar power “purchases” back from the grid a call at zero cost and a zero strike price (the variable cost of producing solar power) for any cloudy hour such that it is not required to supply energy to the grid. The grid must somehow buy offsetting zero strike price calls to assure system supply. The value of a strip of these hourly calls for the grid exceeds any cost savings that solar power can show.
Therefore, from the grids perspective, any investment in solar power has 100% fixed cost to be borne by the grid while an additional equal amount of back up power generation must be provided. (While I admit that, statistically, 100% backup does not need to be built based on probabilistic analysis, probabilistic analysis doesn’t have to answer newspaper reporters after a brownout). Therefore, solar power may look like a “free rider” as far as system adequacy is concerned while still requiring recovery of all fixed and operating costs. Is this a good deal? The individual homeowner who installs solar power has, in essence, gotten a “free ride” for the hourly calls described above. The grid absorbs that cost reasonably easily but the continuing impact of individual consumer choices could cause financial losses for the grid.
I do believe that a reasonable real option case may be possible for some, or all, renewable energy resources. However, until such time as renewable advocates can make economic justifications that explicitly examine not just the variable cost impacts on the system but also the option premium and implicit reliability option components that the grid must bear, the renewable resource debate will not become a valid economic discussion in the eyes of many market participants.
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Your argument fails to recognise two aspects of power. In the short term, Price Responsive Load Management is poised to balance the demands of the grid. For the long term, you ignore the fact that every BTU worth of fossil fuels must be replaced to maintain the current reliability of the system. As a result, the only aspect of your analysis that I can readily agree with is that option analysis is unprepared to manage the realities of the power market.
Thomas Lord 11.18.02
I agree that every BTU worth of fossil fuels must be replaced - that is what the forward curve for fossil fuels costs represents. The cost structure of fossil fuel generation can be solved as a real option. But that really only impacts the variable cost side. Another arguement you may be implying is that all the resource costs - environmental impacts, etc - are not fully internalized in the fossil fuel price curve. A valid point but one that, bluntly, we can't solve here.
The use of Price Responsive Load Management to balance the grid is a great development. However there is an option cost to buy that load responsiveness from the end user. If you are saying that the renewable resource - or for that matter, the fossil or nuclear resource - that is causing the cost for the load response option will accept that cost in a reduction in the market price it charges, then include it in the cost/benefit being shown for the resource. Currently, this option is just a reduction in the cash flow of the utility service provider and therefore, usually, spread among all grid users. It is part of the free rider issue I was addressing. In addition, the other item I was implying was not modeled was the infrastructure - transmission, etc - that is needed for the reneweable resource.
Stephen Heins 11.19.02
Given the checkered history of solar power and its unfulfilled promise over the last thirty years, I cannot help but believe that proven energy efficiency now is far better than the promise of the future of possible electrical capacity sources and renewable futurists. Without a pragmatic approach to reducing electrical consumption, most companies will not be able to afford to up-graded their Demand Side Management.
Consequently, any energy solution needs to provide the deploying company with a robust return on investment, especially with the current state of sluggish capital expenditure. Using Mr. Land's article as a starting place, practical environmentalism is possible for utility service providers and their customers alike if energy efficiency strategies are used now.
Large amounts of future electrical demand (tens of thousands of Megawatts) can be offset by individual companies seizing control of their electrical consumption.
Thomas Lord 11.19.02
The focus on Demand Side Management points out a fundamental requirement for SMD to facilitate DSM. For example, Demand Side Management in Ontario deregulation is a failure. The Ontario ISO has set the observed dispatch price for customer decisions based on the internal pool generation resource price. However, if external power has to be bought to meet pool requirements it is not added to the observed price, rather it becomes an retroactive uplift charge (I believe PJM interchange pricing works in a similar manner). Therefore, in several instances reported to Volatility Managers, companies have decided against demand curtailment because the marginal price was below their break even point only to discover AFTER THE FACT that the purchase price was more than double the observed price. The resulting price was well above their break even price for DSM.
However, the focus of this article was that the cost to the grid of any supply resource should be examined in a real option manner. As both comments point out, in many instances the real option of "negative" demand - DSM - may be the least costly solution. The author believes the use of real option analysis to show the entire cost to the grid of differing methods of meeting supply peaks - either by increasing resources or decreasing demand - is the only way to assure the most efficient investment structure for the industry. If renewables can state a compelling economic case in this manner, project financing becomes a more viable alternative rather than government compulsion for purchasing or subsidization through the tax system.
George Hay 11.19.02
I agree with the comments in general, although it can be very market specific. I worked a few years back with Pacific Gas and Electric's then research program in California studying alternative energy systems, particularly the billions of dollars invested in PURPA biomass, geothermal, wind, solar thermal, municipal solid waste, land fill gas and other systems.
A few comments:
1) Solar energy availability can have high correlations with peak power needs, for example summer air conditioning power loads, thus giving a relatively high capacity and energy values during those period. Given the climate, the probability of clouds are relatively low, thus presumably negating need for back-up power as well as some of the value of energy storage.
2) Renewable energy resources may yield better results when designed with fleet and overall power pool resources mixes in mind then on a project by project basis inherent in deregulated competitive markets. For example, California hydro electric resources far from load centers were originally matched up with cycling oil/gas fired steam units in San Francisco Bay and Los Angeles basin designed for use when hydroenergy wasn't available and/or in dry hydro years. Co-design of wind farms with dynamically operated distributed cycling gas turbines would be the more modern version of this.
3) Many of the PURPA units were designed to be almost all renewable, inherently tying the renewable energy to very expensive small steam power plants (which have dramatic economic penalties in small sizes). Combined cycle plants that are primarily natural gas fired but integrate renewables energy in some manner as a 5-20% supplement in the topping cycle and/or the steam bottoming cycle may yield better economics for the renewables, some environmental offsets for the fossil plant and some fuel flexibility depending on design and operating market circumstances.
4) Lastly, renewable energy in any given area is finite and may yield sub-optimal development if some sort of planning and coordination isn't done, somewhat comparable to maximizing output from an oil field with multiple producers. Both biomass and geothermal development in California in the 1980's resulted in "tragedies of the commons" whereas biomass fuel prices spiked and/or geothermal/biomass projects were abandoned for lack of economic resources. Efficiency can be particularly undervalued relative to "fleet development" in a given power pool. For example, roughly 800 MW of biomass resources in CA were developed under PURPA, with efficiencies in range of 15-20%. Doubling the efficiency would double the number of MW that could be produced at a given price. These "fleet" concepts also need to be applied to fossil fired units, as illustrated by natural gas peak period price spikes a few years back when the close to 20,000 MW of old fossil steam units were run at low 30% efficiencies, when modern technologies can get almost twice that, i.e., if going to use alot of natural gas, plan the fleet wisely.
George Hay CAGT, LLC Haddonfield, NJ 856-427-9793
Gregory Cmar 11.19.02
Tom - It appears in your arguments that you presume that a particular resource “… is causing the cost for the load response option…” Instead, it is the nature of power that is the source of demand for load response. After all, electricity is manufactured, with a significant component of its price dedicated to recovering capital costs.
To this end, load response is not DSM (energy conservation). It is another resource to the grid that negates the need for constructing standby generating capacity to meet peak or emergency conditions in order to manage system reliability. It is also, as you point out, a commodity upon which you can build a real option case.
To presume that the supply assurance of solar is practically zero is, of course, hyperbole. Just like any other weather parameter, we can reasonably predict the amount of insolation a location will receive over time. And as pointed out by George Hay, “solar energy availability can have high correlations with peak power needs...” Its output goes down when it is cloudy, but then again so does the total load on the grid, allowing a myriad of choices to be used to take up the slack. Therefore, I presume that if it is possible to build a real option case for trading weather risk, then solar risk is equally manageable.
My point in this is that electric power is a system of generating resources. There is already backup generation in place that ensures the reliability of the grid and new technologies to tap into resources that are already in place (load response). To call solar, or any other renewable, a ‘free rider’ of this system reliability seems disingenuous. Further, I won’t bother to itemize my objections to your characterization that forward price curves have captured the entire risk of fossil fuel generation. I prefer to refer you to your own paper, “Some Basic Issues for Stable Electricity Market Design” and its significant insights.
At the risk of repeating myself, I think the source of the problem is that option analysis is unprepared for managing the realities of the power market. There is insufficient product to trade. Meanwhile, the market itself is restructuring and exposing new opportunities for product development, creating wider demand for non-existent products. And all the while, the first managers of this energy options market turned out to be… well, we all know.
Thomas Lord 11.20.02
Your definition of load response as "negating the need for constructing" is only valid if the demand agrees to always curtail usage at a certain price point. Most clients I have worked with use DSM as a tactical - rather than strategic - hedge in that they will not commit to use DSM until the immediate market decision must be made. Given certain constraints - client supply obligation, for example - they will have a different constraint price than at other times. Therefore, the need to build additional supply may not be negated. That is why I model DSM as a "negative" demand option rather than as an absolute reduction in peak load.
Yes, supply assurance of solar as zero is hyperbole. However in a commentary it is used to make a point. Another example might be a sub-zero Nor'easter in New England. At that point wind power resources offshore could be constrained due to excess wind speeds - is this a more acceptable example?
Your point that electric power is a system of generating resources with backup was correct in the pre-deregulation era. However, with merchant power - including merchant renewables - the grid has a right to correlate the provision of long term option payments - reliability as opposed to capacity - to the willingness of the merchant provider to assume the risk of the non-availability of its supply resource. The more unreliable a supply source, the more the grid must have additional backup supply.
Your final point is that option analysis is unprepared for managing the realities of the power market. What that meansto me is that you believe open market pricing is not viable in the power market. Your final argument spekas to a failure or deregulation. I would argue it is a filure of market design that has created this current state - not the inability of option theory to analyze the power market.
Abraham davis 11.21.02
One of the greatest hurdles of renewable energy technologies in the US is its perception of being only a technology as oppose to an industry. Unfortunately it has not evolved from the laboratory in the eyes of the US consumer.
Solar, PVs and other renewable power generation technologies have made tremendous improvements. But these improvements have not exploited the numerous niche markets often available. For example most daily applications of PVs by the US public are relegated to novelty applications as calculators, lawn lighting and backup to power laptops.
There must be new and evolved thinking toward the selling and marketing of renewable energy technologies as hybrid systems, product enhancers and other applications to enter the mainstream US consumer to be recognized as a viable industry.
A. Davis firstname.lastname@example.org
Thomas Lord 11.22.02
Abraham, I agree that it has not evolved in the eyes of the consumer. My point is that it also has not really evolved into the mainstream of investment choises where the compelling business case is made based on its economics rather than its policy desireability. The problem is that the economic analysis is normally made on something similar to a DCFROR analysis and we can see what has happened to utility and merchant power development groups who built based on DCFROR.
Stephen Heins 11.22.02
Good economics make good policy while bad economics with good marketing rarely do!
Dick Glick 11.26.02
Our company, Corporation for Future Resources (CFR) -- can demonstrate that its anaerobic fermentation technology based on the use of specific feedstocks grown, harvested and processed using standard agricultural practices, but specifically tailored to tropical species grown in areas of reasonable rainfall can economically and environmentally produce both energy -- biogas containing 60% methane and 40% carbon dioxide -- and a high quality compost-organic fertilizer. Under these defined conditions, the energy product alone provides economic viability while the fertilizer, both with regard to practical use as a fertilizer and its accompanying carbon sequestration effects, practically doubles the overall economic feasibility.
The URL -- http://wire0.ises.org/entry.nsf/E?Open&project&00031306 -- describes the application of CFR's technology to a prospective use in Brazil's state of Minas Gerais. In fact, sufficient agricultural lands exist in Brazil -- using our process under the existing conditions in Minas and elsewhere in Brazil -- to provide -- based on biomass and economically viable -- all of the current energy consumed in Brazil(!) -- again with substantial economic feasibility.
As found in our web page, http://CorpFutRes.com, the use of a giant legume, leucaena, as the anaerobic fermentation feedstock can provide Florida with biomass based renewables resources, energy and fertilizer, that can be grown on up to 4 million acres. The energy component alone would provide Florida with the equivalent of greater than 400 million MCF of natural gas or more than half the 712 million MCF the expanded Florida Gas Transmission Company pipelines into Florida. Further, soil stabilizing fertilizer – no runoff – specifically tailored to the Florida citrus industry vastly increases returns. What’s more, Florida imports the approximately 500 tons per day of carbon dioxide consumed in the State – this too could be made available using CFR’s overall process technology. All three of these products are economic feasibility multipliers. And then the CFR process is accompanied by the sequestration of millions of tons of atmospheric carbon dioxide – a potential revenue source based on carbon dioxide credit sales.
However, at the scale indicated, CFR’s Florida prospective project is not applicable to other States. The rest of the U.S. will have to depend on other renewables technologies.
Dick Glick, PhD President Corporation for Future Resources 1909 Chowkeebin Court Tallahassee, Florida 32301 Phone: 850-942-2022 Fax: 850-942-1967 Email: email@example.com URL: http://CorpFutRes.com http://wire0.ises.org/entry.nsf/E?Open&project&00031306
Darel Preble 11.26.02
The intermittent problem nature of terrestrial solar (and wind) energy can be vanquished by placing solar collectors at GeoSynchronous orbit - this is Space Solar Power. Capacity factors of 96 - 98% are likely after a few years of experience rating. (That scheduled maintenance would occur at the spring and fall equinoxes - good times.) Actual maximum required outage is 72 minutes at each midnight, but that could be easily managed.
The principle constraint to building them today is a lack of reusable launch vehicles, which could be eliminated IF there were a large market for freight, which Space Solar Power would provide in abundance. Our current recommendation is for Congressional legislation to incorporate a privately owned congressionally chartered corporation, very similiar to COMSAT. The Space Solar Power Workshop is at: http://classweb.gatech.edu/conf/sspw/
Darel Preble firstname.lastname@example.org
Thomas Lord 11.26.02
Again - the last two comments point out the need for option analysis. I have no idea of all the requirements for geosynchronous solar collectors are but my assumption, possibly unfounded, is that the capital carrying cost of the build, launch and deploy phase would be such that the implicit option premium makes the system non-viable from an open market investment decision unless it is subsidized. Maybe I am wrong but I would like to see the option valuation. Similarly, the fermentation technology could be a very desirable system - but the answer can be set forth in a simple option valuation. I just didn't see any such data.
Rodney Adams 11.26.02
Using the same kind of analysis that you applied to sources that have been given the political designation of "renewable", how would one go about calculating the value of nuclear electricity generation?
The current fleet of reactors in the United States has developed a rather impressive record of improving capacity factors and overall reliability - with capacity factors approaching an average of 90% and the unplanned outage frequency dropping to near zero. At the same time, the worldwide supply of heavy metal fuels appears to be nearly infinite, especially if converter or breeder reactor technology is applied.
Rod Adams www.atomicinsights.com
Thomas Lord 11.27.02
Nuclear generation has very admirable variable costs but the question is whether the construction costs - with the admitted increase due to regulatory constraints - may be such that the option premium inherent in nuclear energy is unafforable. Again, the idea of this analysis is to make the economic decisions among varying generation resources consistent.
Stephen Heins 11.27.02
Let's not forget how Thomas Lord begins his article: "Renewable energy resources are a concept that is very appealing to me."
In other words, all things being equal renewables have the kind of curb appeal to which most of us respond including author. Intuitively, we all like the sense of the virtuous circle provided by renewables.
Nonetheless, as presented by Mr. Lord in his article, the choices are rather stark at the moment. They are: either what I call the Henry David Thoreau/Walden Pond choice provided by the current state of renewables or the Benjamin Franklin/Poor Richard's Almanac choice provided by the practical approach to economic decisions.
I for one believe that the sweet poetic sound of renewables must be supported by what W.B. Yeats referred to as "the raving slut who keeps the till," that is economic analysis. Until the future of renewables arrives into the present, I favor the practical and equally environmental value of energy efficiency.
Thomas Lord 11.27.02
Actually, we have had end use clients decrease energy costs by values in excess of $4 million per year (though their total energy bill was ine excess of $175 million) merely through production process and inventory control - without any capex. Efficiency has a very high direct payoff for the customer but need not be driven by the grid operator.
There is a very real and valid discussion necessary for the renewable resource generation side when the grid is examining new supply resources. I would argue that, just like efficiency should be a very viable and rational decision that the individual customer makes, the renewable resource generation may be able to make a compelling argument at the grid level.
Joseph Somsel 11.29.02
So Mr. Lord offers an example of a large consumer decreasing their energy costs by 2.3% without capital outlay.
Very admirable - I theoritically could do the same or better in my household by getting all members to diligently turning off lights when not in use, closing the refrigerator door promptly, and wearing socks and sweaters while in the house.
However, in spite of my commanding presence as Head of Household, it'll never happen.
I think Jimmy Carter tried the same approach. At least my subjects can't vote me out of office!
Thomas Lord 11.29.02
Joseph - this was not done by turning off the lights. It was done in a three shift plant that had sequenced production runs to incur heaviest load during the daytime shift to make maintenance easier. It turned out that by running heavy load operations during off peak hours and paying shift bonuses for maintenance staff still saved in excess of 2.3%. When the 2.3% went to the bottom line that was appoximately a 17% increase in gross margin - not bad for zero capital cost.
While it is easy to scoff at demand side response, the analysis that led to the savings above was the same as I suggest in the article - real option modeling. In this case, the option was the flexibility in scheduling plant usage as a way to exercise a spread option against time of day pricing. This did not involve any reduction in plant capacity or output. They felt it was worth it!
Jimmy Carter's problem was that he wanted everyone to sell him the real options for free. The reason that you as Head of Household can't make it happen is that the premium paid to the option holders (your family) is zero while the cost is their effort (infinite cost in the case of a teenage child). Bad Payoff - try giving the kids 20% of the monthly bill savings, maybe that will get the response you want.
Joseph Somsel 12.3.02
Further optimization of business resources, including energy, is largely a matter of better management (or smarter consultants!) No one can scoff at that - real return to the shareholders can be actualized as your example shows.
However, as a public policy to be adapted at the exclusion of other energy options (nuclear?), "conservation" can be a misdirection. Perhaps you could expand your analysis of financial options to include political options. Promising "conservation" or "10% renewables" leaves a politican's options open since he or she can not be expected to really deliver - that's the engineer's job.
I'll try your tip with the kids - thanks.
Thomas Lord 12.3.02
Politics is an option model - normally trading free options sold to someone from the public trust to a specific entity. My belief is that the greatest monopoly trading entity is the legislative and regulatory process. It is very simple to model most laws and regulations using real options - the scary part is then counting the dollars transferred that way!
Stephen Heins 12.4.02
It is my observation that ideas sold to the politicans instead of the private sector lack the guiding discipline of the market forces. Misallocation of capital and ineffectual solutions are almost always sure to follow.
Unlike the current menu of renewables, energy efficiency is a powerful mitigating force that is instantly employable without, as Wall Sreet calls it, the moral hazard or the use of economically unproven technolgies.
Ron Byrd 12.4.02
Renewable energy is an emotional subject that requires careful considerations. On one hand you have the environmental dogma which believes that government should provide the needed investment capital to make energy production an environmentally benign process at any cost. On the other hand is the investment community, which focuses on the rate of return. Least cost, most profitable endeavors have always come from fossil fuel technology with little risk.
The burning of fossil fuels is by far the one thing that has had the most impact on the evolution of mankind. We must equate our technological advancement to the ability to produce power at the least possible cost. At the same time we can not ignore the potential devastation poorly manage resources can have on our ability to sustain life on this planet. Technology, given the correct finical opportunity and government support will advance its self to the point that fossil fuels are no longer a concern to the environment.
The wireless society is near and with it will bring many opportunities for new energy resources that are both clean and sustainable. This is where renewable energy technology will be most prevalent. The ability to make energy production a transparent commodity will have many advantages over the centralized power grid, giving the renewable resources the value matrix investors are looking for.
The author is trying to match the energy value of photovoltaics to existing power generation. This can not be achieved because electricity produced by the sun will not be cost competitive on a utility scale. The sunken capital investment is to high of a risk for utilities to burden. Instead customer owned, grid connected PV distributed throughout the network should be look at as DSM tools. Appropriate price signals need to be applied at the meter, which represent the true cost of the product being distributed. Once an equitable market is established investors will provide the financial support needed to advance the least cost technologies. Eventually more efficient renewable energy device will emerge as the most cost-effective option to grid power. Ron Byrd Vice President SunStar Precision Energy "We Turn Sunlight into Electricity"
Thomas Lord 12.5.02
I agree this is an option but the recognition must be that this is a "policy" investment that may require public funding. The problem with that approach is that the funded resource options will force out privately funded options. It is the subsidization by the grid as an implicit subsidy that I am disagreeing with. The concern is that the subsidy system will have a negative impact on the public perception of the ability of an open market to succeed in the electricity market. Only by adequate financial analysis and exposure of the "policy" and "non-finanical" benefits along with the "financial" costs can the functioning of the market be apporpriately portrayed. Your statement that the price of the meter "represent(s) the true cost of the product being distributed" is what I disagree with. The cost of supporting the grid infrastructure as a "backup" to distributed generation customer is not adequately reflected in current rate structures. Many green proponents claim - rightfully - that changing the structure to increase fixed charges to distributed gen customers for the back up service causes these technologies to be unattractive to the customer. This is true but that may be an unavoidable result of the implicit costs to the grid of supplying this cost. I have seen the impact on system financial and delivery reliability in some countries when the regulators set rates based on policy rather than costs. The result is not pretty. That is one reason why I am actually a bigger fan of demand side response because it can reduce the cost ot the grid of meeting costs - thereby reducing infrastructure needs for all customers.
Ron Byrd 12.5.02
Thomas, A business should never be force into bankruptcy just to protect its customers from price volatility. A universal retail price structure for electrical service needs to be established that allows the utility the ability to recover its cost of operations. This should include the cost to provide stand by capacity for any and all DG. At the same time an equitable value needs to be extended to the DG as a DSM resource. In our case we are talking about renewable energy, primarily photovoltaics. When photovoltaic systems are installed and maintained by the residential customers, the utility company is actually receiving the free ride. Since most of the electricity is being produced during peak hours when the customer is away at work the utility company is getting surplus generation which can be sold to peak power users, most likely the residential customers place of work. When you look at single applications of residential PV that has a peak capacity of 4kW its not going to seem like much of a benefit to the grid. Siting 10,000 of these systems in a LV network could add a significant resource for the grid operator to manage. Given the right pricing structure the utility could benefit from the additional capacity during volatile periods while. Simple net metering may actually be benefiting the utility company more than the residential generator. I believe photovoltaics will only work in the residential sector, because it is not likely that businesses can afford to make the capital investment necessary to secure 20-30 years of electrical energy production. Where as most people are willing to make long term investments in their homes. An incentive is necessary to stimulate the demand for photovoltaics. Once the market is well established the technology will improve and the cost will be degreased to the point where a subsidy is no longer necessary. PV will add value to the grid. It is going to take someone with vision to place a price on that value. How much is a sustainable future worth to you?
Thomas Lord 12.5.02
To be honest, I have little interest in making the investment in a 20 yesr payback for residential photovoltaics. I would rather investment my money in better returns and cover the increasing costs of energy that way. The statement "how much is a sustainable future worth to you" is a psychic income valuation and therefore reinforces your statements about volataics at the residential level. The key statement in your comment is that "most of the electricity is being produced during peak hours" would work very well IF the photovoltaic customer guarantees the utility that they will not draw power at any time during those peak hours EVER. Otherwise the current system requires the utility to have all the generation to meet a coincident peak to be in place and available to meet that 1/100 chance that the voltaic customer does not generate during a peak and instead draws power. If the later case is true then the grid has to bear that 99/100 probability of non-use as a non-utilized asset. That is the real option problem - does the photovoltaic customer still receive a free call on power regardless of market conditions when, for whatever reason, their on-site generation is unavilable?
Stephen Heins 12.6.02
I read with great interest that the City of San Francisco recently spent $7.4 million on the Monsone project. According to the news story, Major Willie Brown's Chief Energy Advisor Smelloff expects the city will save $210,000 in electricity costs a year after the solar panels are installed. Another news wire stories suggested that the annual savings would be over $600,000.
As such, the return on investment for the city is 2.85 % per year, which means that the solar system will pay fo itself in slightly over 35 years at the current California electric rates. Even in the best case scenario, the return on investment would be slightly over 8% per year with a 12 year payback.
My first question is: What are the opportunity costs for San Francisco? It seems inconceivable to me that San Francisco could not have a better way to save energy.
In this case, the cost of political correctness can be staggering and the energy mitigation is de minimus. To paraphase Billy Crystal, "Is it better to look good than it is to be good?"
Ron Byrd 12.6.02
Point well taken, 20 years is a long time. 10 years would be much more expectable. Its conceivable to get a 5 year payback if the economic conditions are right. My guess is you would not make the investment for environmental reasons either. Photovoltaics represent a lot more than pure economic investment value. The technology holds more promise for the future than any fossil fuel known to mankind. Something I find to be constantly overlooked by energy analyst is the declining resource base we have for fuel. It is well known that oil, a major component of our energy needs is not sustainable and is in terminal decline. We have managed to reach a point where oil can no longer meet growth expectations in less than 100 years and similar but more drastic decline awaits natural gas. You can not plan for a "sustainable future" when you are relying on a declining fuel base.
It is only prudent that "voltaics" remain part of the make up of our energy supply. Even if it only represents a small portion, its still a "Good Thing". The technology allows much room for improvements. Given the proper market demand PV will become a cost competitive option to meet our energy needs. The tide is rising and this industry is making a lot of progress. We should be more concerned about the natural gas supply than the current cost of photovoltaic systems.
Will photovoltaics need to be connected to the wires? I think that has a lot to do with your perception of competition and the value it adds to the network. Again planning is everything. It is frightening to think that technology could improve to the point that a natural resource no longer has any more value than plan old dirt. Maybe it is the same feeling whalers had when Edison invented the light bulb.
Darel Preble 12.7.02
Yes, the system is “non-viable from an open market investment decision unless it is subsidized”, but so are ALL major energy and power industry operations subsidized - from nuclear and coal to wind and photovoltaics. The inauguration of Space Solar Power will be no different than these many continuing government/business partnerships which have been started - our railroad system, airline system, interstate system, postal system, and communication satellite system (COMSAT was chartered by Congress in 1962 as a private company and granted a large subsidized advantage in that new business. Intelsat was started as a managed sister company). COMSAT basically kick started the $100 Billion space communications industry. It was recently bought by LockMart and is being dismantled, but it’s job has mostly been done. This is our model for a Space Power Corporation. There are many details such as noticing that the communications business model is very different from the BASELOAD power business model - yes, both just move electrons, but Hoover Dam or a major baseload plant is much more costly than the wires needed for telephone systems. I think some Californians overlooked this and other facts. We know the process works, such as COMSAT and there are no other clean baseload options. (Wind and terrestrial PV, for example, are attractive peak, off-grid, and niche markets - but just distractions - the industry knows this.)
Darel Preble 12.7.02
P.S. Government funding (or subsidy) for SSP is once again zero in the fiscal 2003 budget. Darel Preble email@example.com