By Bob Magyar, Managing Director, Navitus Strategies Nov 11, 2014
Texas, the home state of the oil and gas industry, now has the most installed wind power in the US and it continues to add more wind energy into its electricity generation mix. According to the American Wind Energy Association in its latest 2014 quarterly data, Texas leads the nation in installed wind power with more than 12,752 megawatts (MW) of capacity along with forty new wind plants now in progress. The state has more than double the wind energy of California and four times more installed wind than neighboring Oklahoma, another oil and gas industry hub. With the wind energy transition continuing in Texas, wind’s financials and operating performance are bringing into greater focus two hotbed issues. One is just how many of state’s coal fired generating plants can remain economically viable when compared to wind generation? The second is how will Texas electric utilities and regulators deal with larger amounts of intermittent wind power connected to their ERCOT grid? These two developments are now coming into sharper view in the Lone Star State.
Currently, Texas has fourteen coal fired electricity plants with a total capacity of 7,198 MWs producing more than 50 million tons of C02 annually, with the 14 plants average age at around 35 years old. When these plant’s operating financials and average capacities are compared to similar sized wind energy metrics, including the wind production tax credit, these fourteen plants are increasingly vulnerable to new instate wind farm generation according to the Union of Concerned Scientists.
Texas has already closed several coal fired plants at the Monticello Steam plant and is scheduled to close two more at the J.T. Deely Station. While the announcement of older coal fired electricity plants is often blamed solely on the Obama Administration with heated claims of regulatory overreach, the electric utility industry has been dealing with increasing operating costs from the burning of dirtier and less energy dense brown coal, a growing problem which wreaks havoc, in particular, on older coal generating plants’ financials.
Given wind’s production generation, critics claim it is not a viable energy source due to its intermittent nature. Much of Texas’ best wind production comes at night when winds increase, however this is a mismatch to the state’s power needs during the day. Responding in part to the changes and financials of the Texas electric grid, last week, Texas based Oncor Electric Delivery, the state’s largest regulated electric delivery business and the sixth largest in the US, formally filed for state regulatory approval of more than $5.2 billion of energy storage to be connected to the state’s electric grid to, among other things, store large amounts of wind energy generated at night to be released during the day through battery storage banks. Oncor, which serves 7.5 million customers, is seeking to begin battery storage installation programs throughout its service area by 2018.
Oncor, working with the energy analyst firm, the Brattle Group, released a formal study on the long term impact of adding significant amounts of battery storage embedded into the Texas electricity grid. The study titled, “The Value of Distributed Electricity Storage in Texas, Proposed Policy for Enabling Grid-Integrated Storage Investments”, was recently released ahead of Oncor’ formal filing with the Texas Public Utility Commission. The new report can be downloaded at; Brattle Report on energy storage
The report’s key finding states that, “Storage investments could not be undertaken at an efficient scale solely by merchant developers in the Texas restructured electricity market because the value that a merchant storage developer can capture and monetize through transacting in the wholesale power market alone is too low compared to costs.” The report’s author’s further stated, “For instance, we find that approximately 30–40% of the total system-wide benefits of storage investments are associated with reliability, transmission, and distribution functions that are not reflected in wholesale market prices and, therefore, cannot be captured by merchant storage investors”.
Similar to new findings in the New York State power markets regarding ways to diversify and improve reliability of its electric grids post Super Storm Sandy, the Brattle report adds to the growing body of evidence that electric utilities and electric merchant developers, firms which build electricity generating power plants, lack effective financial incentives from utility regulators to recognize the full societal benefits costs of energy storage in their economic analysis when deciding what type of power plant and/or other electric grid infrastructure to build.
The report also highlights rapid changes occurring in the battery chemistry industry in regard to current and future pricing cost trends. “Due to recent developments, electricity storage appears to be on the verge of becoming quite economically attractive. Most importantly, several battery storage manufacturers have indicated that their costs will decrease substantially over the next few years.” stated the report’s authors.
Regarding specific price forecasts, Brattle stated, “Public reports now forecast cost declines from the current $700–$3,000 per kWh of installed electricity storage in 2014 to less than half of that over the next three years. Some analyst projections and vendor quotes point to even more significant cost reductions, forecasting that the installed costs of battery systems will drop to approximately $350/kWh by 2020. At these much lower system costs, many innovative applications of electricity storage could be cost effective.” The report cites, among others, much of the detailed work being complied and analyzed by Navigant Consulting’s senior battery chemistry analyst, Sam Jaffe.
Oncor Electric Delivery’s request for battery storage to play a greater role as part of the Texas electricity grids along with the Brattle Group’s findings are sure to face obstacles, challenges and critics of non-traditional energy sources. The same issue is taking center stage in New York where regulators are now involved in formulating new programs and accompanying regulations to encourage electric utilities to offer programs deploying more distributed energy equipment solutions such as solar, wind, battery storage and a variety of energy efficiency software and hardware solutions. The long term goal of the initiative called, “Reforming The Energy Vision” http://www.governor.ny.gov/news/governor-cuomo-announces-fundamental-shift-utility-regulation,seeks new incentive models for utilities, encourage and empower customers to use electricity more efficiently while increasing the reliability of the electric grid by decreasing its centralized nature which is highly vulnerable to extremes in weather and high peak demand periods. At the same time fostering new business competition in areas of the grid infrastructure typically under the control of the electric utilities via their monopoly status.
With these developments in energy storage now underway in Texas and New York, California’s major electric utility, Southern California Edison (SCE), responding to new wave of state mandated regulatory policy and incentives, announced the awarding of 260 megawatts (MW) of energy storage in its service grid. SCE made headlines over the last several years when it made the high profile decision to shut down its San Onofre nuclear plant over safety concerns regarding excessive tube wear vibration in a newly installed steam generator portion of the existing nuclear plant. SCE’s contract awards have gone to private industry technology firms such as Stem and Ice Energy among others. Southern California Edison Matt Roberts, Executive Director of Washington DC based Energy Storage Association states the SCE and Oncor developments will have broader implications for the US electrical grid as whole going forward.
Despite the ongoing controversy over the future of the US electricity grid in where and how power will be made in the future, it’s becoming increasingly clear that a unique combination of events centered on more extreme weather, increasing costs in generating production from ongoing oil, gas, coal and nuclear sources combined with the decreasing costs of distributed energy equipment solutions such as wind, solar and in particular, battery storage, are beginning to change the traditional US power industry landscape.
To learn more about Navigant Consulting and Sam Jaffe’s work analyzing various battery chemistry and cost metrics; Navigant Consulting
To learn more about Matt Roberts, Executive Director and the Energy Storage Association: Energy Storage Association Washington DC
To learn more about Oncor Electric Delivery: http://en.wikipedia.org/wiki/Oncor_Electric_Delivery
Full disclosure: The writer does not hold or plan to buy U.S. securities in any of the firms listed in this article. He does not have any financial arrangements of any kind with either the firms or individuals listed in this article. He is not being paid to write for entities or individuals involved in the energy industry and he is not a member of any political action group opposed to the fossil fuel industry.
Bob Magyar has more than 25 years of business development, technology assessment and financial analysis experience in the power generation, electrical equipment and water infrastructure markets. He can be reached at email@example.com.