17 October 2013
This blog often advocates zoom lens thinking — from close up, where the action is, to the big picture, which provides the context for deciding where and how to act. This post takes three looks at solar power generation, at three levels of zoom.
Consider the effect of solar power on electric power utilities, particularly on base loading and peak demand management. Briefly: electric power, with a few exceptions, must be consumed as it is produced, while demand for electric power varies considerably from hour to hour and day to day. So, utilities need to provide power generation and distribution capacity to meet the highest projected level of instantaneous demand from its customer base. Peak demand, hence system capacity, may be two or two and half times average demand. They do this by base loading from large, cost efficient generating facilities, usually coal fired, nuclear or large scale hydroelectric. On top of this base, layers of more flexible (and increasingly expensive) generating capacity are brought on-line as system demand increases. Power bills are structured to moderate peak demand — the price per kilowatt hour (kWh) goes up, usually in tiers, like an upside-down wedding cake, or like income tax brackets.
A Zoomed In View
At our house, here in the high desert of northern Arizona, Joan and I installed solar panels that produce about 1,000 kWh of electric power per month on average. We also use, on average, around 1,000 kWh per month. Our solar power generation is interfaced with APS, our local utility, such that we sell power to the utility when our panels are producing more power than we need at the moment, and we buy power from the utility when our panels aren’t producing enough to meet our immediate needs.
From our point of view, this is a great deal. Our monthly power bill reflects only our net consumption — the kWh we took from the utility, less the kWh we provided to the utility. That net consumption is small, hence is charged at the base residential rate. So, our monthly power bill, excluding a bewildering list of fees, is close to zero. The solar power generation system is leased from a third party. The third party designed, installed, owns, monitors and maintains the system. Our monthly lease payment plus our monthly power bill are much less than our power bills were before installing the system. Further, our lease payment doesn’t depend on the price of fuels, so our monthly power costs are quite predictable for years to come. Joan and I are happy campers.
From the utility’s point of view, this deal also has merit. Our solar system produces most power when the utility needs it most — when the sun is shining and the air conditioners in Arizona are all pegged out. In essence, the utility receives power from us at periods of high system demand and provides power to us at times of generally lower system demand. Further, the additional generating capacity that our little system represents comes without capital investment or maintenance costs to the utility.
Zoom Out to a National Scale
Power utilities are faced with serious environmental concerns, especially with their aging base load facilities. There have been no new large hydroelectric projects in this country in some time. Replacement of existing nuclear facilities as they age isn’t bloody likely. Existing coal fired facilities face additional high cost emissions reduction requirements. EPA is scheduled to announce tough standards for future coal fired facilities. And the prospect (or threat) of a carbon emissions tax is quite real.
Most power utilities recognize that they need to phase out fossil fuels. Their problem is how to replace that fossil fueled capacity over time, without sacrificing service levels, without significantly increasing the cost of power, while finding the capital to fund the necessary investment. This is a manageable situation, but certainly not a simple one.
The image labeled “Figure 76” is from the Annual Energy Outlook – 2013, a U.S. Government publication, provides some perspective. As you can see, coal + natural gas + nukes fueled about 87% of the electricity generated in the U.S. in 2011, while renewables provided about 13%. By 2040, the total contribution from renewables is projected to increase to 16% — hardly an overwhelming fraction.
But wait — there is more. As the image labeled “Figure 82” indicates, the largest contributor to electricity from renewable sources is hydroelectric power. Solar power provided only a small fraction of the renewables capacity in 2011. While solar capacity is projected to increase by about 1000% (to 46 gigawatts) by 2040, that is still a very small portion of the total electric power generated in this country.
The Annual Energy Outlook’s figures for 2011provide a credible view as to where we are. However, future projections are just that: projections. The future may well turn out differently. The Rocky Mountain Institute’s remarkable Reinventing Fire, for example, starts with recent Annual Energy Outlook figures, then provides a credible blueprint to a very different situation by 2050 — a situation where about 80% of our power requirements are economically supplied from renewable sources, utilizing technologies that already exist.
Zoom Out Further to an International Perspective
Regardless of which projections you like, solar power is very likely to be a rapidly increasing factor in electric power in the coming decades. As it does, the prevailing business model of the centralized power utility will be increasingly threatened. How to Lose Half a Trillion Euros, a recent article in The Economist, describes the situation that power utilities are facing in Europe today. “Renewables capacity (which is much higher than output) is almost half of electricity-generating capacity in Germany and roughly one-third in Spain and Italy. Total capacity, including renewables, is way above peak demand in all three countries.” When supply exceeds demand, prices come under pressure. In the power industry, this is especially difficult when peak demand prices fall, since peak loads are where the profits come from. “Renewables have not just put pressure on margins. They have transformed the established business model for utilities.” says The Economist. “It is an existential threat” says the chief executive of a major European utility.
For Smaller Manufacturers
Any way you dice it, industrial power supply is changing and will continue to change over the next several decades. Here are some things smaller manufacturers should be doing:
- Become very familiar with your power suppliers and with your power bills.
- Take systematic actions to continually improve your energy utilization efficiency. This includes facilities and vehicles, not just process loads.
- If you generate steam or otherwise use energy other than electricity, change to natural gas if at all practicable.
- Look into solar power, especially for your buildings. Most factories have plenty of roof space for solar panels. As our house demonstrates, the economics can be surprisingly good and lease arrangements may be very attractive. 
Any way you zoom it, the times they are a-changin’. Take control of your power costs.
Thoughtful comments and experience reports are always appreciated.
… Chuck Harrington (Chuck@JeraSustainableDevelopment.com)
P.S: Contact me when your organization is serious about pursuing Sustainability … CH
This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.
 Of course, these figures vary substantially with season and weather.
 The Annual Energy Outlook is published by the Energy Information Agency, a unit of the U.S. Department of Energy. The latest version of the Annual Energy Outlook can be downloaded from www.eia.gov (if the government is open for business).
 Lovins, Amory and the RMI Staff, Reinventing Fire, Chelsea Green Publishing (2011)
 How to Lose Half a Trillion Euros, The Economist, October 12th – 18th 2013 issue, page 27f.