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Topic: Electricity Update Pt 7

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Cincydawg

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Re: Electricity Update Pt 7
« Reply #14 on: February 28, 2019, 08:40:44 AM »
You would need to factor in regulations in places like CA that have demanded that a certain percentage of power be W/S by such and such a date AND consider the impact of any subsidies, but your figures make a good claim.

I presume your figures are US only?

I wonder how Hawaii is going to manage over time as W/S become more prevalent and they lose their base load capacity.  The wind there is however about as constant as you'll find anywhere (trade winds across the mountains can be fierce).  I don't think batteries are cost effective and they have no room for a hydro pumping operation of any size.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #15 on: February 28, 2019, 08:49:07 AM »
Given that current consumer prices are over 25 cents per kwh, this makes good economic sense.

Solar + battery is the cheapest new form of technology on islands that have to import oil, coal, etc.

https://www.greentechmedia.com/articles/read/aes-completes-its-record-breaking-solar-and-battery-plant-on-kauai#gs.QWKwL9Li

AES Completes Record-Breaking Solar and Battery Plant on Kauai

SNIP:
The Kauai Island Utility Cooperative (KIUC) is finishing up commissioning for the Lawai Solar and Energy Storage Project, which combines 28 megawatts of solar photovoltaic capacity with a lithium-ion battery capable of storing 100 megawatt-hours.

AES owns and operates the plant on behalf of KIUC, under a power-purchase agreement pegged at 11 cents per kilowatt-hour.

The plant delivers solar power when a standalone solar plant can’t: at night. That offsets the peaker plants that turn on for the evening peak; in Hawaii, those plants tend to run on imported oil, at considerable expense.

Lawai can crank a full output of 20 megawatts for five hours. With 100 megawatt-hours of stored energy, the battery can also operate more like a baseload plant, delivering a lower amount of power for more hours through the night until the sun comes back up. AES expects to offset 3.7 million gallons of diesel each year by dispatching more cost-effectively than the fossil-fueled incumbents.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #16 on: February 28, 2019, 08:53:06 AM »
If I could buy electricity at under 2 cents per kwh, I think I'd do it as well - mandate or not.
That is stunningly cheap.

https://www.windpowerengineering.com/business-news-projects/kansas-university-makes-wind-power-deal-with-westar-energy/

SNIP:
The University of Kansas (KU) has signed an agreement with Westar Energy to ensure that roughly 100% of its future electricity needs will be supplied by renewable wind energy. A 20-year agreement with Westar Energy will provide the KU Lawrence campus with 31 MW of energy from a 300-MW wind farm constructed in Nemaha County. The Soldier Creek Wind Farm is expected to be online by the end of 2020.

The DRPS tariff will lower the university’s fuel factor cost from 2.3 cents per kilowatt hour (kWh) to 1.8 cents per kWh — a nearly 22% savings. With these savings locked in by a 20-year agreement, KU has one less decision to make when it comes to long-term planning and goal setting.

Cincydawg

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Re: Electricity Update Pt 7
« Reply #17 on: February 28, 2019, 08:54:48 AM »
I still don't understand why Hawaii is not moving faster.  I understand the capitol cost, but the operating costs appear to be less than half of petroleum.

Most companies jump at a chance to write off old equipment for anything that is twice as efficient.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #18 on: February 28, 2019, 08:55:23 AM »
Pricing down -70% in a decade.
Amazing.
I wish I could see the same efficiency in the rent I pay for my apartment.

https://www.nextbigfuture.com/2018/09/wind-power-costs-at-2-cents-per-kilowatt-hour.html

SNIP:
Wind energy prices remain low. Lower installed project costs, along with improvements in capacity factors, are enabling aggressive wind power pricing. After topping out at 7 cents per kWh in 2009, the average levelized long-term price from wind power sales agreements has dropped to around 2 cents per kWh – though this nationwide average is dominated by projects that hail from the lowest-priced region, in the central United States. Recently signed wind energy contracts compare favorably to projections of the fuel costs of gas-fired generation.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #19 on: February 28, 2019, 08:57:04 AM »
Hawaii's new capacity-add will take them from 12.7% in 2018 to over 25% in 2021.
That's pretty fast in my opinion.

Kauai is over 50% renewable as of this year.

https://alexanderbaldwin.com/ab-helps-kauai-reach-renewable-energy-milestone/

With this new system, 50 percent of the energy KIUC provides on Kauai comes from renewable sources.

KIUC estimates the project will allow it to avoid the use of 3.7 million gallons of diesel fuel each year.
_________________________________________________ ______


http://www.hawaiinewsnow.com/2019/01/09/land-that-once-grew-sugar-cane-now-provides-renewable-energy-kauai/

SNIP:
KIUC has a goal of 70 percent renewable by 2030. KIUC added that power generated at the facility will be purchased by the cooperative at 11 cents per kilowatt hour via a 25-year power purchase agreement.

Cincydawg

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Re: Electricity Update Pt 7
« Reply #20 on: February 28, 2019, 09:01:28 AM »
that term "tariff" caught my eye, the articles on line are a bit sketchy about what that means, but it appears it could mean no capital costs are paid for by the user.  I could not find a clear explanation.

https://www.greentechmedia.com/articles/read/top-10-utility-regulation-trends-of-2017#gs.3C6eDXzn

Anyway, it SOUNDS as if all this is happening without much government help, right?

HK_Vol

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Re: Electricity Update Pt 7
« Reply #21 on: February 28, 2019, 09:03:00 AM »
Hawaii Residential Electricity Prices.

https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_06_b

2018:  32.48 cents per kwh
2017:  29.50 cents per kwh

New solar+battery capacity added at 11 cents per kwh at the wholesale level.



HK_Vol

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Re: Electricity Update Pt 7
« Reply #22 on: February 28, 2019, 09:05:59 AM »
Wind subsidies have been declining for years and go to zero in 2020.
Yet, lots of new wind capacity is being added even at minimal / zero subsidies.
For wind turbines installed in 2019, the tax credit is 3/4ths of one penny per kwh.


https://www.energy.gov/savings/renewable-electricity-production-tax-credit-ptc


SNIP:
Applying the inflation-adjustment factor for the 2017 calendar year, and the 20% step-down required by H.R. 2029, the production tax credit amount is as follows:

$0.019/kWh for wind

The tax credit is phased down for wind facilities and expires for other technologies commencing construction after December 31, 2016. The phase-down for wind facilities is described as a percentage reduction in the tax credit amount described above:

For wind facilities commencing construction in 2017, the PTC amount is reduced by 20%
For wind facilities commencing construction in 2018, the PTC amount is reduced by 40%
For wind facilities commencing construction in 2019, the PTC amount is reduced by 60%

Cincydawg

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Re: Electricity Update Pt 7
« Reply #23 on: February 28, 2019, 09:13:11 AM »
Something doesn't make sense, but perhaps the utilities often don't make sense.

I was paying 6 cents per kWhr in Ohio and I think it's lower down here, but those two new reactors in Vogtle are still being built (and nominally on schedule now, after some significant delays).  Why would a utility build a capital intensive nuke if wind and solar are so cheap?  Baseline?

NG facilities are still being built, maybe for surge loads or something.

Anyway, maybe all this means the country will shift to W/S much faster than I expected.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #24 on: February 28, 2019, 09:17:30 AM »
It is called "sunk costs." 
Investors rarely, if ever, are willing to throw away significant amounts of money, even if the future returns aren't really justified.

My friend Heinz (a really smart guy) wrote to me this week on just this type of issue, as we were discussing the recent rise in C&I borrowing / lending.

He wrote:

Actually, money supply growth is slowing even as C&I lending is concurrently rising - and this is a phenomenon typically seen near the end of a boom.  Companies are scrambling to obtain capital that is scarcer than was previously thought. Some begin to draw down their credit lines with banks in order to finish projects that are beginning to run into resource constraints. Here is a brief discussion of this phenomenon (it has happened at the end of almost every post-war boom period - it was particularly glaring in 2007-2008). 

A related discussion by Hayek penned in 1937 may be of interest in this context as well. He pondered why rising interest rates didn't immediately kill a boom. Entrepreneurs will often decide to continue to pursue projects that would never have been invested in at the now higher interest rate as long as their operating results are near break-even or slightly profitable (even though they will not earn back the capital invested or only do so at an extremely slow pace)... this in turn makes it profitable for others in the production structure who make complementary products to also continue to pursue their plans. The effect will reverberate across all portions of the capital structure that are somehow concerned, including raw materials producers, makers of intermediate capital goods, etc. 

I just found what I wrote about this to someone else at the turn of the year - here it is:

In late 2017, C&I lending growth had almost come to a halt, but by April it had rebounded to 3.5% y/y.  In February 2018 TMS-2 growth had declined to a new multi-year low of less than 3% y/y. I remembered that I had seen a similar sequence before, i.e., a sharp slowdown in TMS-2 growth followed by a sudden spike in C&I lending growth - and that was on the eve of the 2008 crisis.  Back in 2008 I simply saw it as a function of commercial paper markets shutting down and companies making sure their short term liquidity needs were taken care of before the banks got any ideas about altering credit line commitments. To some extent concerns about investor attitudes are playing a role now as well, since such a large proportion of corporate debt is provided by non-bank investors these days (it should be noted that they are in turn partly funded by banks - there are reportedly hedge funds buying CLOs at 10:1 leverage). 

After giving it some more thought I realized that it is also in tune with Austrian theory, in particular the idea that it is the pool of real funding that creates a limit to what can actually be financed rather than the ability to create ever more money ex nihilo. The latter method only works as long as the pool of real funding continues to expand and permits the diversion of scarce resources to projects that would not be considered viable if market interest rates were in line with actual time preferences. 

The signal normally provided by market interest rates can be suppressed by central bank policy for a long time in a prosperous market economy, but not forever. Traditionally the Fed actually follows short term market rates with rate hikes rather than the other way around. My take on this is that a critical mass of market participants (including banks) realizes that the supply of real capital (i.e., actual savings) is no longer sufficient to fund all the economic activities in the higher stages that the credit expansion has egged on. This boosts the influence the originary interest rate exerts on market rates, or put differently, it helps actual time preferences to reassert themselves. Businessmen don't need to know anything about economic theory to realize that free capital is scarcer than they thought it was - the only signals they need are rising rates and suddenly hesitant former yield chasers in the corporate bond markets, who now insist on higher yields, stricter covenants and shorter bond maturities. 

By the time all of this percolates to the decision-making stage at corporate boards, a kind of "vicious cycle" is already underway from the perspective of those in urgent need of cheap funding. If one's calculations were based on the ZIRP era, it is best to borrow as much as possible before it becomes more expensive to do so, and that is the incentive to draw down credit lines - and I suspect it also provides a short term boost to purchases of capital goods. In fact, Hayek wrote about this particular effect in 1937 in an essay titled "Investment That Raises the Demand for Capital".  

He pondered why a boom does usually not immediately collapse when interest rates rise and how already malinvested capital can actually become the driver of an entire sequence of subsequent investment activities. He considered the situation of those in the higher orders of the production structure who have managed to complete an investment project that they would in hindsight not have undertaken if they had known the true situation (i.e., one not falsified by credit expansion),  as well as that of those operating in subsequent stages who plan to make use of the project's output. Hayek mentions the example of a power station. At an interest rate of 3%, the erection and operation of the station may have appeared to be economically viable. However, while the project is completed, the credit expansion is halted, and interest rates ultimately increase to 6%. This higher cost of capital would normally have mitigated against its construction. From the perspective of the owners of the power station, it represents a sunk cost – one they would rather not have to contend with, but it is too late to rectify their error. The question then becomes whether it makes sense to operate it anyway. Even if the returns cannot not justify the sunk cost, they will undoubtedly decide to operate it if revenues at least cover or slightly exceed the cost of operation (in which case they may be able to recoup at least some, but not all of their investment).

From the perspective of potential customers of the power station, the fact of its existence can make complementary investments viable that would normally not have been considered at a higher interest rate.  This is so because they have to pay less for its output than they would have had to pay for the output of a station constructed in the new environment (i.e., one that earns not merely a smidgen more than its operating cost, but also amortization and interest). A partially completed investment process can therefore lead to additional demand for capital at higher interest rates to complete an entire chain of investments, demand that would not have been forthcoming had the initial investment not taken place. Near the end of a boom, this will tend to lead to surging demand for capital in spite of higher rates. While it may appear in such cases that the investment in the higher stage project (the power station in this example) was not a complete waste, the resulting investment in subsequent stages (e.g. in electrical motors) still withdraws capital from other uses – something that would not have happened had the original malinvestment not occurred. The result will once again be a capital structure that is sub-optimal relative to actual consumer wants.

As an aside to this, the exact opposite situation can also be frequently observed once a boom turns to bust. Major non-convertible capital investments in the higher stages may actually be completed in the technical sense at the end of a boom, but nevertheless be revealed as a waste of capital beyond the fact that their sunk costs can no longer be recuperated (in other words, the landscape does not necessarily have to be literally dotted with half-finished factories). Often their operational costs will also turn out to be higher than their potential income. As the boom draws to a close the frantic bidding for factors from the middle and lower stage industries that are attempting to complete a chain of investments may lead to an increase in labor costs and the prices of non-specific capital goods that such investments are rendered completely non-viable. So there may be newly erected plants after a boom concludes that are “finished” in a technical sense, but nevertheless represent a complete waste of capital, i.e. they might just as well be scrapped. 

Cincydawg

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Re: Electricity Update Pt 7
« Reply #25 on: February 28, 2019, 09:26:10 AM »
I worked for a large company and capital costs were a significant consideration in doing anything "different".  The sharp pencils would do a lot of work to figure payout obviously, but if a thing could produce a product 2x faster/cheaper/whatever, it would be jumped on quickly.

Back then, depreciation could be as much as 30 years and they'd take a writeoff of installed equipment pretty quickly if something was 2x better.

I can recall some items being replaced for only a slight gain, but we were not regulated like a utility and had a lot of cash flow.


HK_Vol

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Re: Electricity Update Pt 7
« Reply #26 on: February 28, 2019, 09:36:47 AM »
Coal has gone from more than 48% of electricity production in 2008 to less than 28% in just a decade.

Shedding 40% of your asset capacity (coal plants) in just one decade is pretty dramatic - especially in an industry such as utilities.

So while we may perceive the shift as "slow," I'm betting the utilities don't feel that way at all....

You can't just "switch the flip" as John Malkovich (Marvin) once said.

Cincydawg

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Re: Electricity Update Pt 7
« Reply #27 on: February 28, 2019, 09:42:34 AM »



 

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