Tag Archives: Solar energy

Follow Ups: Fracking and Taxes

Fracking does not, repeat, does not harm underground water. But it can pollute surface water.

Frack me a river. A week ago, I noted how American Rivers had designated the Rappahannock River the fifth “most endangered” river in the United States on the grounds that the gas industry was showing interest in drilling in the Taylorsville shale basin beneath the river. Environmentalists claim that fracking is a hazard to drinking water, while industry groups say it is not. My take at the time: Who knows?

Now a Duke University study using sophisticated chemical tracing techniques has demonstrated that fracking has not contaminated groundwater in sample of 112 drinking wells in West Virginia, although accidental spills of fracking wastewater have polluted surface water. Fracking, or hydraulic fracturing, is a technique in which drillers inject pressurized sand, water and chemicals deep underground to fracture shale in order to release the oil and gas it contains. Environmentalists have long claimed that the procedure can contaminate water in underground aquifers.

“Based on consistent evidence from comprehensive testing, we found no indication of groundwater contamination over the three-year course of our study,” said Avner Vengosh, professor of geochemistry and water quality at Duke, co-author of a peer-reviewed study. States the press release:

Samples were tested for an extensive list of contaminants, including salts, trace metals and hydrocarbons such as methane, propane and ethane. Each sample was systematically analyzed using a broad suite of geochemical and isotopic forensic tracers that allowed the researchers to determine if contaminants and salts in the water stemmed from nearby shale gas operations, from other human sources, or were naturally occurring.

The tests showed that methane and saline groundwater were present in both the pre-drilling and post-drilling well water samples, but that they had a chemistry that was subtly but distinctly different from the isotopic fingerprints of methane and salts contained in fracking fluids and shale gas. This indicated that they occurred naturally in the region’s shallow aquifers and were not the result of the recent shale gas operations.

What’s true of West Virginia is not necessarily true of Virginia — geologies differ. And the Duke study warned that impact of fracking on groundwater might take longer than the three years of the study period to take place. Still, with its sophisticated science, the study undermines the endlessly repeated claim that fracking is a threat to underground water.

Solar farms: no longer a money-loser for local government.

Fixing a tax quirk. Three weeks ago, I blogged that a quirk in the way the state treats the value of solar energy projects for tax purposes could throttle Virginia’s solar industry in its infancy.

Under state law, solar farms qualify for an 80% tax exemption on projects exceeding 25 megawatts — an inducement for developers to build large solar facilities in Virginia. The exemption significantly reduces local government revenue from the project. At the same time, the Secretariat of Treasury has not taken the exemption into account when calculating the local tax base for purposes of distributing state aid for education. The perverse result is that local governments could lose tax dollars from a big solar investment, creating disincentives for them to provide needed permits.

Reston-based solar developer SolUnesco brought the discrepancy to the attention of state officials. After reviewing the matter, the Tax Commissioner issued a ruling to eliminate the discrepancy: “The actual assessed value will be reported by the Department to the Department of Education (DOE) as the true value of property to be used by DOE to calculate the amount of state educational funding.

“The So What,” says Francis Hodnall, CEO of SolUnesco, is that “projects over 25 mw … will provide a net revenue to counties.”

A Good Year for Retail Solar in Virginia

It's not everything environmentalists wanted, but a new law will create new retail solar options for consumers.

It’s not everything environmentalists wanted, but a new law will create new retail solar options for consumers. Photo credit: VA SUN

  • A collaborative process involving utilities, solar developers and environmentalists broke the legislative logjam thwarting the growth of retail solar in Virginia.
  • A new law will enable electric customers to subscribe to green electricity built by independent developers.
  • The same process will be used to tackle tough issues like net metering.

So, you want to help save the world from global warming but you’re stymied from installing solar panels atop your house. Maybe you rent the place. Maybe trees are shading the roof. Maybe you’re planning to move soon. Or maybe you just don’t have the money.

There are many reasons why even the most zealous green power advocates are stuck buying the same regular, garden-variety electricity as everyone else. But now, thanks to legislation passed in the 2017 General Assembly session, Virginia energy consumers soon will have a new option — subscribing to solar power rather than owning it outright.

SB 1393 requires Dominion Virginia Power and Appalachian Power to create solar programs in which the utilities bundle electricity from community solar projects — typically small solar farms or large rooftop arrays — and resell it to customers. Under the new plans, customers pay monthly knowing that their dollars are supporting development of solar facilities near where they live. If more customers subscribe, more solar farms will be built.

The scheme benefits small-scale solar developers as well. They don’t have to worry about signing up subscribers and the hassle that goes with billing and collections. It’s up to us to develop a program that’s attractive to subscribers,” says Katharine Bond, senior policy advisor for Dominion. The arrangement even works for rate payers who have no interest in going green. Says Bond: “The only people who bear the cost are those who elect to participate.”

The legislation represents a genuine step forward for retail solar in Virginia. “At the end of the day, I think it’s a really good policy that will benefit Virginians,” says Mike Town, executive director of the Virginia League of Conservation Voters. Equally important is the way in which utilities, solar developers and environmental groups sat down to work it out. “It’s precedent setting. It will lay the groundwork for progress down the road.”

While Virginia’s utilities are building large, utility-scale solar projects, state laws and regulations have made it all but impossible for independent developers to create smaller projects and sell electricity to individual businesses and households. Every year solar backers have submitted bills in the General Assembly to open up the market, and every year the legislation has been beaten back. Utilities have opposed measures that would cut into their monopoly in retail electricity sales.

In the 2016 General Assembly session, legislators submitted several retail solar bills that failed to pass. This time, lawmakers asked the utilities and solar industry to work on a compromise and come back with a proposal that would fare better in 2017. Dominion Virginia Power, Appalachian Power, and Virginia’s electric co-ops sat down with representatives of the solar energy to negotiate legislation that would let independent solar developers into the game.

Mark E. Rubin, director of the Virginia Center for Consensus Building at Virginia Commonwealth University, was hired to facilitate the dialogue. As the industry groups approached agreement, Rubin invited environmentalist groups to join the conversation. They injected important perspectives that would win the support of the environmental lobby.

“I think the general view was that this process turned out to be a helpful way to get together and work through issues,” Rubin says. “Just the idea that you had different stakeholders siting around the table having very candid, very productive discussions was a big deal in and of itself.”

The legislation doesn’t make everyone happy. In theory, existing Virginia law allows independent companies to sell renewable electricity to customers if neither Dominion nor Apco have tariffs to do so. Delaware-based Direct Energy filed a petition last year for declaratory judgment with the State Corporation Commission, asking the regulatory body to clarify the company’s rights under Virginia law to sell electricity to Dominion and Apco customers. The SCC ruled earlier this year that it could, but only as long as the utilities weren’t doing it. If utilities entered the market, Direct Energy could continue serving existing customers but couldn’t sign up new ones.

“It can take months or years of marketing for a third-party supplier to build up enough of a customer base to make the whole effort worthwhile, so the SCC’s ruling makes the Virginia residential market much less attractive,” writes Ivy Main, editor of the Virginia chapter of the Sierra Club’s “Power for the People” blog. Continue reading

Property Tax Assessments Could Sabotage Virginia’s Solar Industry

Outlook murky.

A quirk in the way the state treats the value of solar energy projects for tax purposes could throttle Virginia’s solar industry in its infancy, according to an analysis prepared by SolUnesco, a Reston-based developer of solar energy projects.

In theory, a major investment in solar energy should benefit the jurisdiction where the project is located by generating significant new property tax revenues. But under current practice, any gain in revenue for a locality would be more than offset by cuts in state support for public schools. If local governments calculate that solar projects will cost them revenue rather than boost their tax base, they will have a strong incentive to deny necessary permits rather than approve them.

“Bureaucratic bookkeeping might grind solar development to a halt,” states a SolUnesco white paper, “The Composite Index and How It Relates to Solar Development in Virginia.”

SolUnesco has proposed building an 11-megawatt solar facility in Albemarle County, but the county zoning code prohibits solar farms. The Board of Supervisors has asked the county planning commission to study the issue. A repeal of the restriction might encounter opposition from NIMBYs intent upon protecting the rural character of the county, as I blogged here. Albemarle’s decision could well hinge on its calculus of whether the project will benefit or hurt the county fiscally.

Under state law, solar energy projects are assessed for property tax purposes as “certified pollution control equipment.” That qualifies solar farms for an 80% reduction in property taxes. That exemption improves the economics of solar projects but it reduces the tax benefits to local governments.

By contrast, the state Department of Taxation counts the full market value of solar farms when calculating the Composite Index (CI), which is used to measure local governments’ relative fiscal health and ability to support public K-12 education. The state distributes state support for education on a sliding scale that gives a higher share to localities with a low CI (a smaller real estate tax base per capita) and a smaller share to wealthier jurisdictions. As SolUnesco summarizes: “Increased taxable property increases the Composite Index, which reduces the share paid by the state.”

So, how does that work out in practice? SolUnesco provides the hypothetical example of a solar project that creates taxable value of $100 million. Here’s how the numbers work out for a “representative county.” The county generates $80,000 in new tax revenue on $20 million of assessed value. But the county would lose $147,597 in state funding for schools based on the full $100 million added to the Composite Index. The net loss: $67,597.

If the Department of Taxation used the same value as the local government in calculating the Composite Index, our hypothetical county would experience a $52,083 revenue gain.

“Counties that have permitted utility-scale projects may regret their decision if they believe these projects will result in a net revenue loss,” states the white paper “Many projects have received their county [conditional use] permit, but many have yet to file for their building, electrical and other construction permits.”

“The state is aware of this inconsistency in their treatment of tax exemptions,” says SolUnesco. The Department of Taxation, Department of Education, and the State Corporation Commission “are all working together on a resolution.”

Will NIMBYs Thwart SolUnesco Solar Plan?

SolUnesco CEO Francis Hodsoll addresses the Albemarle County Board of Supervisors

SolUnesco CEO Francis Hodsoll addresses the Albemarle County Board of Supervisors. Photo credit: Charlottesville Tomorrow.

Not all barriers to solar energy emanate from Richmond. Take Albemarle County, for example. The county zoning code outlaws solar farms, we learn from Charlottesville Tomorrow.

“The current zoning ordinance allows for the transmission and distribution of energy, but not the generation of energy,” said county planner Margaret Maliszewski at Wednesday’s Board of Supervisors meeting.

The issue arose because Reston-based SolUnesco wants to submit an application to develop an 11-megawatt photovoltaic solar energy generation system in southern Albemarle. “Our project is for the wholesale supply of energy that goes onto a wholesale network of transmission and distribution lines and that allows people to buy energy from our project or for a utility to buy energy directly from us,” said SolUnesco CEO Francis Hodsoll.

Albemarle Supervisors directed the planning department to study the issue. But, while the Charlottesville-Albemarle area may be home to many solar-loving greenies, don’t take it for granted that county planners will roll over for SolUnesco.

“As a member of a rural neighborhood, the first thing that comes to mind is protection of the rural areas,” said Phillip Fassieux at the board meeting. “We all love solar power, but at what cost? … “How will residents of Albemarle benefit specifically from turning over part of our rural county to its use? Will we see reductions in electricity rates?”

Everyone loves solar in theory, but opposition frequently surfaces locally when someone proposes building a solar farm near them. Others object to the idea of vast solar farms displacing agricultural uses of the land. SolUnesco’s proposed 11-megawatt solar farm, big enough to supply demand for about 2,000 households, would require between 70 and 80 acres of land. Typically, solar farms include vegetated buffer zones to screen the solar panels from view.

(Another potential objection to solar is that, given the state formula for distributing school aid, a big capital investment in solar could actually hurt a county financially. I’ll deal with that issue in a separate post.)

Bacon’s bottom line: Call me a Neanderthal, but I support private property rights. I see no justification for Albemarle County — or any county — to impose zoning restrictions prohibiting solar farms. If a property owner decides that installing solar panels represents a use of land preferable to agriculture or timber, that should be his decision to make. Counties have no business intervening unless the land use creates a nuisance to neighbors. Unlike wind turbines, solar panels create no noise, are easily hidden from view, and don’t harm wildlife. NIMBYs need to get a life.

And one more thing… The SolUnesco pitch to landowners asserts that its 25-year leases will generate above-market returns for landowners with an inflation escalator. The company assumes all costs and risks associated with developing the project — the landowner just collects checks for 25 years.

Rural Virginia is hurting. It has few resources of value in the knowledge economy. One thing it does have is land. Solar energy represents a rare opportunity for Virginia’s rural economy. There are many complex issues surrounding the integration of solar into the electric grid that need to be resolved before we see widespread deployment, but land use should not be one of them.

Electric Reliability and Energy Mix

 Portfolios with high mixes of coal, nuclear and natural gas have the greatest electric reliability.

The purple line shows the Composite Reliability Index (CRI) of different energy-mix portfolios. Portfolios with high mixes of coal, nuclear and natural gas have the greatest electric reliability. Portfolios with large wind components tend to be more reliable than those with solar.

Electric utilities in the 13-state PJM Interconnection regional transmission territory have a balanced resource mix — coal, nuclear, gas and renewables — that is “well equipped” to support reliable operation of the regional grid, PJM has found in a new report, “PJM’s Evolving Resource Mix and System Reliability.”

But continued evolution of the resource mix — particularly the decommissioning of coal and nuclear plants and increasing reliance upon natural gas and renewables — could create reliability issues in the future.

PJM is in charge of maintaining the integrity of the electric grid within its territory, which includes all of Virginia. The study analyzed a spectrum of “portfolios” with different fuel mixes to see how they would affect a variety of electric reliability attributes such as voltage control, frequency response, and the ability to ramp production up and down as needed.

Of particular relevance to the ongoing energy debate in Virginia, PJM found that portfolios with 20% or greater of solar energy in the fuel mix would be “infeasible” because they would be unable to reliably meet night-time requirements. There don’t appear to be any upper bounds for natural gas, but excessive dependence upon gas could create vulnerabilities under a “polar vortex” scenario of sustained, bitterly cold temperatures.

In Virginia, Dominion Virginia Power has emphasized the importance of fuel source diversity, including coal and nuclear. Dominion’s plans for nuclear, which include extending the longevity of its Surry and North Anna nuclear units by an extra 20 years and possibly building a third nuclear unit at tremendous expense at North Anna, have proven particularly contentious. Solar constitutes a small percentage of Virginia’s fuel mix but is fast growing, and environmentalists are pushing for a much bigger role.

Across the PJM region, notes the study, the fuel mix has become more evenly balanced over time. In 2005, coal and nuclear generated 91% of the energy on the PJM system. But between 2010 and 2016, extensive coal capacity was retired and replaced mainly with gas and renewables. PJM’s installed capacity in 2016 consisted of 33% coal, 33% natural gas, 18% nuclear and 6% renewables and hydro. PJM has said in the past that the transmission grid was flexible enough that it could accommodate up to 30% renewables.

Each fuel source has advantages and disadvantages in helping electric utilities balance electricity supply and demand while sticking to tight parameters for frequency and voltage. Coal and nuclear are less responsive to changes in demand, taking far longer to ramp production up and down. Wind and solar are easy to turn off but, due to the variability of the wind and sun, cannot be turned on at will. Natural gas tends to be the most flexible, and PJM’s most reliable portfolios include large contributions from gas. Electric batteries also would provide considerable flexibility, but PJM does not foresee them being deployed on a large scale within the time-frame of the study.

States the study:

  • Portfolios with the lowest unforced capacity shares of wind and solar tend to have the lowest composite reliability indices. (Note: “unforced capacity” refers to capacity in normal operating conditions as opposed to maximum “nameplate” capacity.)
  • Composite reliability indices generally improve as capacity shares of nuclear, coal and natural gas increase.
  • When coal and nuclear units are retired and replaced, portfolios with the highest composite reliability indices tend to be ones in which natural gas is the predominant replacement resource.

Bacon’s bottom line: PJM makes no judgment about the “best” fuel source mix, and it does not say that the most reliable fuel mixes are necessarily more desirable. If the goal is to increase renewables for reasons of reducing CO2 emissions, it is possible that some fuel mixes are reliable enough to accomplish both reliability and sustainability objectives.

Still, the PJM analysis suggests that high-renewable fuel mixes are “at risk for underperformance” and likely will need “additional technology requirements and/or new market rules” to ensure electric reliability.”

Solar as Economic Savior for Wise County?

After Wise County coal mines close, what comes next?

After Wise County coal mines close, what comes next?

When I covered the coalfields beat for the Roanoke Times in early 1980s, Virginia coal companies employed more than 25,000. The number has dwindled to one-tenth that number today. Not only has the number of miners plummeted, but so has employment in the industries that supply them with everything from timbers, rock dust and roof bolts to heavy trucks and continuous mining machines.

Wise County, where Virginia’s coal industry took root more than a century ago, is desperately trying to diversify its economy. In an irony of ironies, it is looking to solar energy. But it has run into a regulatory tangle.

As described by the Roanoke TimesWise County has robust broadband connections, courtesy of the Virginia Tobacco Commission, which it is trying to parlay into technology investment. It has secured one big victory so far, which it hopes to build upon. The Mineral Gap Data Center, under construction at the Lonesome Pine Regional Business and Technology Park, will create 30 jobs. But many energy-hungry data-center companies are demanding renewable power, and Wise County is served by Old Dominion Power, a subsidiary of Kentucky Utilities Company, which derives only one percent of its electricity from renewables.

As it happens, a solar company wants to locate in Wise: Energix Renewable Energies, the largest renewable energy company in Israel. The company has signed a non-binding memorandum of understanding to build a 20-megawatt solar facility in Wise. Here’s the catch: Energix wants to sell excess power back to Old Dominion Power, and Old Dominion Power isn’t interested. “Our generation portfolio is meeting our customers’ needs at this time and we do not currently have the need for additional generation capacity,” the utility says, as quoted by the Times.

Now the Wise County Industrial Development Authority wants Governor Terry McAuliffe to intervene. Although it is too late for the General Assembly to introduce new bills this year, McAuliffe can propose amendments, and Wise County is asking him to propose one that would require Old Dominion to buy solar power from Energix and re-sell it to other companies in the business park. Whether McAuliffe can find a germane bill upon which to attach such an amendment, even if he were inclined to do so, is an open question.

Bacon’s bottom line: I am totally sympathetic to Wise County’s desire to diversity its economy, and building a data center/solar power industry cluster sounds like a plausible idea. Data center jobs would be highly paid by local standards, and both data centers and solar facilities would shore up the local tax base. But giving Wise County what it wants would potentially unravel Virginia’s electric utility regulatory structure. Perhaps the electric utility regulatory structure needs unraveling. But thought needs to be given to what to replaces it, and a ginning up a last-minute gubernatorial amendment is not the venue for contemplating a major overhaul.

In the meantime, there is nothing to stop Energix from selling its surplus electricity into the wholesale electricity market maintained by PJM Interconnection. Of course, the price likely would be lower. But Energix cannot reasonably expect to charge the full retail rate for electricity when it is not responsible for maintaining the electric grid that distributes the electricity.

Alternatively, a data-center company seeking to locate in Wise County could purchase renewable power from outside Wise County. For example, Amazon Web Services isn’t purchasing green energy from Loudoun County solar farms — it’s importing solar energy from the Eastern Shore. Half a loaf would be better than none.

While Wise County has a weak case in the context of the current regulatory structure, it is equally clear that the rigidity of that regulatory structure is not helping economic development there. The more instances we hear like this, the more political pressure will build to revisit Virginia’s utility regulatory framework.

Following the Least-Cost Pathway to CO2 Cuts

The least-cost pathway concept acknowledges that as annual electric-sector emissions of CO2 approach zero tons per person, the cost per ton reduced increases.

The least-cost pathway concept acknowledges that as annual electric-sector emissions of CO2 approach zero tons per person, the cost per ton reduced increases. (Image source: IHS Markit)

Global greenhouse gas emissions have increased steadily as China, India and other countries bring new coal-powered electric plants online, but the United States has bucked the trend. In the U.S. electric power sector, CO2 emissions declined 20% between 2007 and 2015.

One might think that California, which is re-restructuring its electric power system to reduce carbon emissions, played a major role in that accomplishment. But it didn’t. In fact, even as the Golden State boosted wind and solar output from 2 percent to 14 percent of in-state electricity production over that period, CO2 emissions held steady. The reason: The share of natural gas-fired generation grew from 50 percent to 60 percent.

Explains IHS Markit, a purveyor of market intelligence and analysis: “This was needed to back up and fill in for intermittent renewables, replace output from prematurely closing nuclear plants, and offset declining hydroelectric generation.”

The economics of CO2 reduction are complex, and not all CO2 reduction strategies are created equal — either in terms of cost or in terms of emissions reduced. As IHS Markit notes in a Wall Street Journal advertorial today, there are more cost-efficient ways to cut greenhouse gases than mandating renewables. “The reductions achieved via [California’s] wind and solar mandates cost 10 times more than the ones achieved through its cap-and-trade programs.”

The idea that cutting greenhouse gas emissions is a compelling national goal is far from universally accepted. Not everyone embraces the more cataclysmic predictions of temperature rise, not everyone believes that an atmosphere richer in CO2 will lead to universally baleful effects, and not everyone agrees with the proposition that cutting CO2 emissions is the best way to respond to a warming climate. But let’s set those reservations aside for a moment and assume that combating global warming and cutting CO2 emissions is a global imperative, and that we’ve all got to do our bit to turn the tide.

IHS Markit employs a concept it calls “the least-cost pathway” to CO2 reduction, which ranks CO2 reduction strategies for the electric power industry by cost-effectiveness — essentially by dollars-per-ton of CO2 saved.

The lowest-cost approach is replacing coal, which emits a large volume of CO2 per unit of electricity generated, with natural gas, which emits about half the volume. That approach is so cost-effective that it has already occurred on a large scale, driven largely by market forces (and Environmental Protection Agency rules that cracked down on emissions of toxic metals from the combustion of coal).

Thanks to the fracking revolution, which has expanded the supply of natural gas and pushed down the price, U.S. electric utilities have shifted dramatically from coal to gas. That’s the reason U.S. CO2 emissions have declined so dramatically. While this approach has not totally run its course, the rate of gas-for-coal substitution is likely to slow significantly, as only the newest, cleanest, most cost-efficient coal plants remain in operation.

Extending the life of aging nuclear power plants is somewhat more expensive, and building new nuclear facilities is significantly more expensive. On the positive side, nukes have zero carbon emissions and they provide a reliable base-load capacity. IHS Markit sums up the pros and cons: “Nuclear power plant extension is cost-effective early on, and new nuclear plants become cost-effective as the curve moves into deeper reduction.”

Energy efficiency is part of the equation, says IHS Markit. However, “encouraging efficiency investments beyond what consumers would do themselves involves increasing costs.”

As for wind and solar, they, too, are part of the solution. “But not as the primary source of generation. … Wind and solar costs are not reaching grid parity when the need to align power output to when consumers want electricity is taken into account. Battery technologies are improving but are still not a cost-effective way to manage variations in electricity demand.”

The comparative economics get murkier when we look into the future. Will natural gas prices increase, and by how much, as the most productive wells are depleted and exports of Liquified Natural Gas soak up excess supply? Will the cost of solar panels and battery technologies continue to decline as in the past, or will the pace of innovation slow? Will the price of building new nuclear plants remain breathtakingly high, or will some combination of new technologies (mini-nukes, anyone?) and relaxation of excessive safety regulations bring down the cost?

As IHS Markit concedes, there is little consensus. Still, the market-intelligence company provides a useful framework for looking at Virginia’s energy future: We should pursue the least-cost pathway to CO2 emissions.

The devil is in the details, of course. We can haggle endlessly over the cost-effectiveness of any given approach. But the idea makes more sense than pre-supposing that any particular approach — coal, gas, extending old nukes, building new nukes, wind, solar, energy conservation — is the way to go. Different energy sources have their own place in the fuel mix as Virginia’s electric power sector moves up the least-cost pathway.

Tracking California’s Grand Experiment with Solar

California solar farm

California is leading the nation’s transition from fossil fuels and nukes to renewable fuels, mostly solar power. The Golden State’s aggressive investment in solar energy has created such a glut of daytime electricity that solar wholesale prices literally drops to zero and such a shortage during the night that real-time prices surge as high as $1,000 per megawatt hour. Regulators and utilities are learning how to cope with these problems through battery storage, grid modernization and energy conservation.

Hopefully, Virginia utilities and regulators are paying close attention as the Old Dominion defines its own approach to renewable energy. On the one hand, by going slowly, Virginia can learn from California’s mistakes and work-arounds. On the other, Virginia’s cautious approach to solar risks allowing other states crack the code first on how to generate reliable, lower-cost and green power, thus converting the price and quality of electricity from a competitive advantage to a disadvantage.

In 2016 the average cost of electricity in Virginia was 8.88 cents per kilowatt hour, according to the U.S. Energy Information Administration. In California, the cost was 14.88 cents per kilowatt hour, 40% higher.

California is spending billions of dollars in giant test project in which the entire state economy is the subject. The great challenge with solar, as oft alluded to in Bacon’s Rebellion, is coping with intermittent nature of generation. Last month, notes the Wall Street Journal, Sempra Energy flipped the switch on a bank of 400,000 lithium-ion batteries installed by Virginia-based AES Corp. The batteries will smooth out power flows in San Diego’s solar-intensive electric grid. Meanwhile, Tesla, Inc., is supplying batteries to a Los Angeles-area network tied together in a microgrid of 100 office buildings and industrial properties. Reports the Journal:

When [Edison International] needs more electricity on its system, the batteries would be able to deliver 360 megawatt hours of extra power to the buildings and the grid, enough to power 20,000 homes for a day, on short notice. At other times, the batteries would help firms hosting the arrays to cut their utility bills.

Clearly, strategies exist for overcoming the variable and daylight-only production of solar panels. The big question is how much the batteries cost. And that tends to be a ticklish subject. As the WSJ noted regarding the Tesla/Edison International project in Los Angeles, “The companies declined to say how much the project would cost.”

Broadly speaking, battery storage has two different uses. One is fine-tuning the electric grid, a function that exploits the ability of batteries to respond instantaneously to micro-fluctuations in voltage and frequency. The other is storing electric power until it is needed at a different time. In this second use, batteries compete with natural-gas peaker plants, which are essentially jet turbines that sit idle until needed. Unlike conventional power plants that ramp up and down slowly, gas peakers and batteries can respond quickly to changes in demand.

Stored power from lithium-ion batteries can do the work of a natural-gas peaker plant at an average cost of between $284 and $581 a megawatt-hour, according to a December report by Lazard Ltd. In contrast, electricity from a new gas peaker plant costs between $155 and $227 a megawatt-hour, according to Lazard.

(By comparison, the average retail price of electricity in Virginia is about $89 per megawatt hour.)

Clearly, lithium-ion batteries are far too expensive at present to use on a large scale in Virginia as a peaking resource. But solar advocates hold out the hope that battery storage will decline in cost. Is that realistic?

The lithium-ion battery chemistry may be reaching the limits of its potential, reports Fortune magazine in an article published yesterday. “The biggest proof may be in the spate of explosions now plaguing smartphone makers from Samsung to Apple, in part thanks to li-ons’ tendency to grow dendrites, metal strands that can cause short circuits.”

John Goodenough, a co-inventor of the lithium-ion battery, claims to have developed a solid-state battery that replaces lithium with sodium, which, in theory, can hold three times more energy, charge quickly, and never explode. Commercialization of the technology is years away, however, warns Fortune. By way of comparison, Lithium ion batteries took a decade to move from the laboratory to the marketplace.

When it comes to reducing CO2 emissions, Californians seem willing to pay any price. That approach will not sell politically in Virginia. But California is more than a Land of Fruits and Nuts. It has some of the most brilliant scientists, engineers and technologists in the world. If green power can be made economically competitive with fossil fuels and nuclear, California will figure it out. We Virginians should not necessarily emulate its example, but we should be paying attention.

Dominion Fulfills 400-Megawatt Solar Commitment

Dominion solar farm

Dominion solar farm. Photo credit: Dominion.

Dominion is investing more than $800 million in solar projects in Virginia totaling 398 megawatts of generation either completed or under development. The projects bring the company within an eyelash of fulfilling a 2015 promise to bring 400 megawatts of large-scale solar generation facilities into service by 2020.

Furthermore, said Dominion in a press release issued today, 80% of that capacity is being covered by large business and government customers ranging from Amazon Web Services to the Commonwealth of Virginia and the University of Virginia. Most of the development and construction cost of the projects will be borne by customers under contract, not passed on to rate payers.

Legislation enacted in 2015 declared that development in Virginia of up to 50 megawatts of solar projects in the state was “in the public interest.”

“We are well ahead of schedule on the solar expansion and what we have added so far will have a very minimal impact on the price of electricity for the 2.5 million regulated customers we serve in Virginia,” said Paul Koonce, CEO of Power Generation at Dominion Energy. “Our goal is to have a balanced generating portfolio that is highly reliable, cost effective and environmentally responsible. The cost of energy powered by the sun is coming down and we are working hard to develop projects in new and economical ways for our customers.”

Bacon’s bottom line: Most of this information has appeared in previous announcements, which raises the question of why Dominion issued this press release at this particular time. The backdrop is the increasing pushback the utility is experiencing by gubernatorial candidates and lawmakers on a variety of fronts. Most significantly, the 2015 deal that froze the base rates of Dominion and Appalachian Power for six years has been re-opened for scrutiny.

With this press release, Dominion is reminding the public that there was more to that 2015 legislative compromise, crafted in response to the Obama administration’s Clean Power Plan, than the rate freeze. The company also committed $57 million over five years to energy assistance to low-income customers and made the 400-megawatt commitment to solar. Reading between the lines, the press release says, “Hey, guys, we made good on the solar promise.”

Bacon’s other bottom line: It’s also apparent — again, reading between the lines — that Dominion management is not persuaded that solar makes economic sense… yet. In other words, its commitment to solar at this point in time is driven by political considerations.

Why do I say that? Because Koonce stresses that the company’s solar investment to date “will have a very minimal impact on the price of electricity.” The implication is that solar would increase the price were it not for the fact that Dominion is building its utility-scale projects by means of long-term contracts with entities willing to pay a premium price for green energy.

The crux of the matter is that solar power is not “dispatchable” — Dominion does not control when it generates solar electricity. It produces electricity only when the sun shines, which does not coincide with periods of peak consumption, and, further, is subject to weather-related interruptions, meaning that electric companies must maintain expensive back-up capacity to fill in.

The vast majority of Dominion’s investment has been in large, utility-scale projects, which are easier to integrate into the high-voltage transmission grid. PJM Interconnection, the regional transmission organization of which Virginia is a part, has said that the region grid could accommodate up to 30% intermittent wind and solar power by redirecting energy flows across a 13-state region.

The dynamics of on-again, off-again production play out differently on the local distribution grid, which lacks the flexibility of the interstate transmission grid. That’s why Dominion has installed 10 experimental, rooftop and other small-scale solar sites around the state: to learn more about how local electric circuits respond to fluctuations in energy output.

Dominion is under tremendous political pressure to accommodate more “distributed generation.” But the economics are very different from utility-scale generation that ties into the transmission grid. Published reports say that the cost of solar could fall to as little as 4 cents per kilowatt hour by 2040. That compares to roughly 11 cents charged by Dominion Virginia Power today. But that still leaves the intermittency issue. While battery storage has been touted as a remedy, battery manufacturers like Tesla are hoping to get the cost down to $100 per kilowatt hour by 2022. There’s still a long way to go before large-scale rooftop deployment is feasible.

Yet in the press release Koonce acknowledged that “the cost of energy powered by the sun is coming down.” So, who knows what the future might bring?

McAuliffe Reverses, Now Opposes Electric Rate Freeze

Governor Terry McAuliffe

Governor Terry McAuliffe said yesterday that he supports legislation that would cancel the freeze in base electric rates on Dominion Virginia Power and Appalachian Power if President Trump kills the Clean Power Plan. The endorsement came a little late for state Sen. J. Chapman Petersen, D-Fairfax City, whose bill to roll back the freeze was killed in a Senate committee in January in a 12 to 2 vote.

Taxpayers “are entitled to the lowest, most efficient rate that we can deliver to them,” McAuliffe said on the John Fredericks Show, which broadcasts in Hampton Roads, Richmond, Lynchburg, Danville and Franklin. “If Chap Petersen can get me a bill on my desk, I’d sign it. Let me be clear.”

“There’s a better chance of me starting for the Redskins as quarterback,” said Petersen, as quoted by the Richmond Times-Dispatch. “Governor, you’re going to need to send down the legislation.”

In 2015 The General Assembly passed a bill freezing base electric rates, which McAuliffe signed, after the Obama administration had rolled out the Clean Power Plan requiring Virginia’s electric utilities to significantly reduce CO2 emissions. The State Corporation Commission staff had estimated that the legislation could push electric rates 20% higher. With a stated goal of providing rate stability in uncertain times, the legislation locked base rates in place for six years.

Environmentalists were critical of the bill from the beginning, arguing that the Clean Power would increase rates only marginally. Then industrial customers contended that Dominion had been overcharging customers before the law went into effect, and the law locked in rates at excessively high levels. Moreover, they charged, the electric companies weren’t even taking on a major risk: If the Clean Power Plan had forced them to retire coal plants and build new generating facilities, they would have been able to pass on the cost through a Rate Adjustment Clause, which wasn’t affected.

Dominion has argued that the law also provided for annual, instead of biennial, review of power companies’ Integrated Resource Plans, making the planning process more transparent. As part of the legislative compromise, the company also upped its financial commitment to its Energy Share energy-efficiency plan for low-income homeowners.

Furthermore, Bill Murray, Dominion’s managing director of public policy, said last week, the company has taken $296 million in write-offs for the past two years for expenses relating to the closure of its coal ash ponds. The freeze prevents the company from recovering those costs. “Those are costs we are absorbing.”

Bacon’s bottom line: McAuliffe’s support for reversing the freeze is a day late and a dollar short. As a practical matter, Petersen’s bill cannot be resurrected. Reversing the freeze without understanding the emerging regulatory context may not make sense anyway. The Trump administration has made clear its intention to kill the Clean Power Plan. We Virginians need a clearer idea of what kind of energy policy we want going forward. Simply rolling back the freeze doesn’t inform that debate.

Solar power is the potential game changer. The cost of generating solar energy continues to decline, and so does the cost of battery storage, which will help offset the intermittent nature of solar generation. No one disagrees with those propositions, but many questions remain open. How rapidly are solar prices declining? When will solar become economically competitive with natural gas in Virginia? That depends in large measure what happens to natural gas prices. Will they rise from currently low levels, and, if so, by how much?

Another big question is how much solar can Dominion, Appalachian Power and Virgina’s electric co-ops absorb without undermining the reliability of the electric grid. A related set of questions revolves around how much retail competition regulators should allow, how to guarantee the integrity of the grid if electric utilities lose market to independent solar operators, and how rate payers will be impacted if utilities experience a decrease in consumption.

One more pressing matter: What’s the role of nuclear in a post-Clean Power Plan world? While it still may make economic sense to renew the licenses for Dominion’s existing nuclear power plants, building a third unit at North Anna guesstimated to be $18 billion probably does not. Dominion wanted to maintain that option as an insurance policy, at a cost of hundreds of millions of dollars in engineering and permitting expenses, to protect against the most onerous of the Clean Power Plan regulatory scenarios. In a Trump presidency, that scenario looks highly unlikely. Should Dominion scrap North Anna 3?

If Virginians want to unfreeze the freeze, we need to recognize that no regulatory action takes place in a vacuum. Rather than dealing with each of these issues piece-meal we should settle them in a comprehensive way.