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.

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.

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.

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

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.

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.

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 ideglobe@aol.com

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: dglickd@pipeline.com URL: http://CorpFutRes.com http://wire0.ises.org/entry.nsf/E?Open&project&00031306

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 preble@5sc.com

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

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.

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.

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!

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.

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.

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.

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"

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?"

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.