The Case for Pragmatic Innovation

When using the term “renewable revolution”, many conjure up images of the French Revolution, when an entire social and political system was upended in under ten years. While technological revolutions can sometimes occur rapidly (i.e. the Internet Revolution), more often they are much slower. Such is the case with the Industrial Revolution that arguably began with Abraham Darby’s pioneering use of coke to smelt iron ore in 1709, and lasted as late as Henry Ford’s Mass-production of the Model T in 1908. That’s almost 200 years! While comparing the industrial revolution to the “renewable revolution” may not be an apples-to-apples comparison, the point is that the best technical analysis available and the political realities of our time both strongly suggest that we are not a French Revolution away from the completion of the “great renewable revolution”, where all energy is renewable and no one is tethered down by that “old-fashioned” grid.

 

 

Figure 1: Unsubsidized Levelized Cost of Energy Comparison for Various Generation Technologies, Source: Lazard 2016

The demand for government action to accelerate the “renewable revolution” does not consider the fact that some renewable energy sources are currently economically competitive with conventional generation technologies such as coal and natural gas. This brings into question the need for subsidies at all. For instance, Lazard’s December 2016 Levelized Cost of Energy (LCOE1) Analysis places unsubsidized wind generation in the U.S. at between $32/MWh and $62/MWh, lower than all conventional generation technologies measured (Figure 1).  The primary takeaway? Wind at good locations and proper scales, produces lower cost energy than the most competitive forms of fossil-fueled generation.

Despite the apparent cost-efficiency of alternative energy sources, such as wind, we are not yet ready to fully supplant conventional energy generation technologies with alternative resources.  Accompanying Lazard’s 2016 analysis was a study of unsubsidized LCOE for energy storage. The study found that: “Even though alternative energy is increasingly cost-competitive and storage technology holds great promise, alternative energy systems alone will not be capable of meeting the baseload generation needs of a developed economy for the foreseeable future.” Testament to this are Lazard’s findings that the lowest LCOE range for Lithium-Ion battery storage, which was that at the transmission grid scale (notice the word grid), ranged from $267/MWh to $561/MWh, almost 10 times higher than the LCOE of wind energy. Taken together, intermittent renewable generation paired with energy storage, produces costs of energy far outside of the range of conventional sources such as hydro and natural gas.

Lazard’s 2016 analysis suggests many things, one of the most important being that renewable technologies are changing the energy landscape. However, it does not assert that the grid is soon to be a thing of the past, which some assume to be an inherent feature of the renewable revolution before us. In fact, most technical analysis, especially when paired with environmental considerations, points to the grid being our only hope of meeting continental GHG commitments. For instance, the Brattle Group recently noted that changes in the energy landscape will lead to declining demand for electricity in the U.S. from current sources, but at the same time, only the widespread electrification of sectors, such as heating and transportation, would allow the US to reach GHG reduction goals. This widespread electrification can only be economically (and technically) achieved in the near future using utility scale projects and utilizing locational advantages enabled by transmission and distribution systems.

 

 

Figure 2: GHG Emissions Reductions Under Various Electrification Scenarios, Source: 2016 Analysis for the NREL by The Brattle Group
So, in closing, what am I calling for? I am calling for innovation in how we think about innovation. Pragmatic innovation calls for us to use the technology at our disposal, deploying it in the most efficient manner that we know while being mindful of possible cost increases that can arise from irrational exuberance for a French-style renewable energy revolution.

 

Advocating for the fracturing of the grid, and its reorganization into energy fiefdoms is counterproductive to the general goal of innovation. Indeed, an article in The Economist recently pointed out that it is the Ultra High Voltage Direct Current (UHVDC) system that allows China to cost-effectively produce and transport renewable energy from its frontier to its densely populated coastal regions. To be sure, the Lazard analysis does note that behind-the-meter energy generation/storage systems at factories, universities and hospitals are promising, but it is also careful to point out that the economic viability of these systems depends on local market structures and incentives. This is also the case with residential generation/storage systems that rely on subsidies, and importantly, the ability to sell power back onto the grid to be economical. Again, that word, “grid”!

I am not saying that we stop incubating innovation. Canada has many policy mechanisms that perform this role. What I advocate is for us to deploy the renewable technologies that HAVE matured, in the way that we KNOW they are currently best used. That means allowing the engineers and planners at our utilities (the best system for electricity provision that we have for the foreseeable future) to do their jobs and innovate where they see appropriate.

To assist our utilities in doing this will require new regulatory models. These regulatory models must be designed with innovation in mind, both in terms of technology, but also in terms of business. For instance, small residential solar with storage may be a cost-effective solution in certain circumstances, but in many cases these systems require large upfront payments that deter many private citizens. Why not, as in Vermont, allow our utilities to deploy these systems on loan? Why not allow utilities to experiment with rates that properly charge net-metering1 users for their increased use of the grid, or for the value of the power that they produce? Why don’t we, like in New York, start a conversation regarding how to work towards the regulated utility model of the future, as opposed to how to destroy it? To harken back to my French Revolution analogy, I say let’s recognize that the royal treasury is not empty, but let’s also realize that this does not preclude us from convening the Estates-General.

 


1 The ability of rooftop solar owners to sell power back to the grid, which is required in order to render many of these systems cost-effective