The Right Energy Balance - Renewables and Natural Gas

Posted on July 18, 2014
Posted By: Kirk Edelman
 

When we talk about solutions for our nation’s energy needs, the conversation is often framed as an either/or choice between generation from renewable sources and from fossil fuels. Based on my experience investing in global energy projects, I believe that we need both. While it’s important to build a system that uses renewables as much as possible to ensure sustainability and environmental responsibility, there are two challenges posed by renewables that are oftentimes overlooked.

First, the variability of the output of renewable energy, like wind and solar, can pose operational challenges. When the wind stops blowing and the sun stops shining, power output drops dramatically. The system operators who run our nation’s power grids are engaged in a complex process of constantly balancing the amount of power being consumed with the amount being produced. This delicate balancing act becomes much harder when generation sources fluctuate.

Consider the situation in California, where rolling blackouts were ordered in over 500,000 million homes earlier this year because of increased temperatures, a higher power demand, and reduced power from many Northwest generators. More power shortages and rolling blackouts are expected this summer as the peak demand for power will likely exceed supplies. Energy Secretary Spencer Abraham recently said, “California is just a sign of what’s to come if we don’t diversify our energy resources.”

The second challenge posed by renewables involves the economics of underutilized infrastructure that is necessary to support power transmission. Wind and solar farms are typically located in isolated areas that require a significant investment in long transmission lines and interconnections to deliver power to the grid. With the lower capacity factors typical of renewable energy, this expensive infrastructure is not fully utilized.

To deliver the flexibility required to meet our energy demands on a real-time basis, the industry is increasingly turning to fossil fuels for peaking capacity to supplement renewable generation. One of the most attractive technologies currently available to address this need is a fast-start, natural gas combustion turbine. Two plants operating in California (the Lodi Energy Center and El Segundo Energy Center) and two more in Texas in final design/early construction (the Panda Temple Power Project) are good examples of this fast-start technology. With two gas turbines as its main drivers, the El Segundo Flex Plant can quickly generate up to 300 megawatts of power in less than 10 minutes, allowing the plant to effectively back up intermittent renewable power generation to maintain a steady, consistent and reliable supply of power to the grid.

Integrated offerings comprising technology and finance are strongly positioned to effectively address the challenges project developers currently face. An anchor member of the lending syndicate for the Panda Temple I project with expertise in technology provided $25 million of the loan that helped finance the project. The company acted as an advocate for Panda Power throughout the financial structuring, and supported the successful underwriting, closing and funding of the loan.

The recent boom in shale gas production makes fast-start combustion turbines even more attractive. As shale gas becomes more prevalent and prices continue to fall, gas turbines will become even more compelling. What’s interesting to note, too, is that the carbon footprint of a modern gas-fired plant is surprisingly small. Compared to the average air emissions from coal-fired generation, natural gas produces approximately half as much carbon dioxide, according to Environmental Protection Agency data.

Going forward, project sponsors will increasingly target sites of existing renewable projects where they can develop quick-start fossil plants. This approach achieves economies of scale that maximize the investment for both the renewable project as well as the gas-fired peaking plant. A recent example of this scheme is the Sentinel Energy Project, an 800-MW natural gas-fired, fast-start, peaking power plant located in the vicinity of over 3,000 wind turbines northeast of Palm Springs, California.

We should continue to invest in renewables with the expectation that over time renewables will continue to become more cost competitive. Meanwhile, the industry is moving to combine renewables with natural gas to achieve greater capacity and better utilize shared infrastructure – all with an attractive carbon footprint. That’s a win-win strategy for all stakeholders, including project developers, financial investors, lenders and even rate-payers.
 

 
 
Authored By:
Kirk Edelman is the chief executive officer of Siemens Financial Services' (SFS) Project and Structured Finance - Energy business, where he leads energy investing activities worldwide. He manages the activities of a global team that provides financial solutions throughout the capital structure - from debt to equity – in support of the energy industry.Kirk has more than 20 years of experience focusing on energy, natural resources and infrastructure finance. Prior
 

Other Posts by: Kirk Edelman

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Comments

July, 18 2014

Ferdinand E. Banks says

Interesting isn't it, but I keep Calling myself the leading academic energy Economist in the World, and I would never have guessed that the optimal combination/balance was renewables plus natural gas. In fact in my lectures I say that the optimal package is nuclear plus the rest, and without nuclear it ain't gonna work.

Of course, many Citizens can't say that in a seminar or Conference or classroom or on a streetcorner, but I can for two reasons. (1), I can add and subtract, and (2) anybody saying that I am wrong hears some things about themselves that they would rather not hear.

July, 20 2014

wala lang says

With the lower capacity factors typical of renewable energy, this expensive infrastructure is not fully utilized. That's it. http://www.agentstealth.net

July, 21 2014

Richard Vesel says

Cheap and efficient high capacity storage needs to be large component. We can reduce generating capacity if sizable storage facilities are available. I would include nuclear or renewably-produced hydrogen with nearby fuel cells as one entry in the "storage" category, as long as there are other consumers of hydrogen, in the transportation sector, that would help lower the cost of production thru scale.

Yes, Fred, nuclear should be there. Convince the public!

July, 21 2014

Malcolm Rawlingson says

It is a much bigger problem than that Richard. Cheap storage is important but the hysterisis has to be satisfactory. That is the energy in must be about the same as the energy out. If you lose lots of the energy in the process of storing and retrieving it then that doesn't help much.

Of course the key is storage but the industry that woul benefit the most from that is not renewables but nuclear. They could be run at constant power levels and as demand drops in the evening the surplus would be stored to meet the day time peaks. In fact ALL you need then is storage plus nuclear and there is no need for anything else.

Not sure who the public is that needs convincing. I think you must only be talking about North America. In Ontario public support for nuclear power is very high. Of course the vocal minority gets all the press and the CBC here is antinuclear but facts are that the Ontario public supports nuclear power overall and well over 50% of the MWh generated comes from nuclear plants. We have 20 in Ontario of which 18 are operating at full power,

So depends which public you are referring to. The Chinese public apparently does not get the opportunity to be convinced.

The concept of hydrogen storage has been bandied about as a means for allowing the entire system to become nuclear but of course the volumes of hydrogen necessary are colossal and the risks of H2 explosions too high for most utilities to consider it a viable option.

Looks good in a physics text book but practically it is a non-starter.

I also point out that the economics of renewables combined with storage is awful. As you have no doubt noticed, the output of solar panels - even in Germany where the aura of Ms. merkel shine day and night - is zero. That means to supply overnight loads all of it must come from storage or wind. On a not windy night all of it must come from storage. So not only do you need to build out solar so that it can produce enough to fulfill the maximum demand during the day you ALSO need to build it out so that the surplus can be stored. Aswell you need to build a storage facility in addition to all this. Seems to me the capital cost is a lot higher than just building a plant whose power you can regulate as the demand suits.

Storage plus nuclear is the ideal solution.

Malcolm

July, 22 2014

Ferdinand E. Banks says

I'm tempted to say that if you have to convince the public you are lost: The 16 lost years in the US can be chalked up to the public. But the truth is that the only people who need to be convinced are the politicians. The public is concerned with its standard of living, although they dont know it, and if they don't have the right energy mix they are in trouble or they are going to be in trouble. To take Sweden as an example, why would an intelligent prime minister (conservative) appoint someone energy minister who wanted all nuclear liquidated. If he had appointed someone intelligent, that someone could have given the public the old razz-a-ma-tazz and a pro-nuclear majority would have been assured.

Of course, in the long run there is no problem. Without nuclear your gorgeous public is going to be in serious trouble, and moreover they will know it. It just has to be explained to them in the right way, if you get what I'm talking about.

July, 22 2014

Richard Vesel says

Malcolm, in generation scenarios where fuel is a very low cost component, as in nuclear, or zero, as in renewables, or negative (waste-to-energy) then building sufficient capacity "overhead" to do the charging for the storage components is where the financial analysis has to come in. Right now, for pumped hydro storage, the loss is about 30-35%, from energy in to energy out. Not too bad, but also location dependent.

Battery cycling efficiency is highly dependent on the technology, however, the economic picture depends on how cheap the storage capacity comes. Storing "cheap power" at $3-$10MWhr and putting it back on the grid at $35 the next day would allow you to make money even at an efficiency of only 33%. The complicated economics have to be run using location-specific statistics modeling several years of operation. My main point is that storage is less meaningful for a fossil-based traditional generation mix, and much more meaningful in a variable renewables mix. All the more reason to pursue cheap practical storage technology.

I can imagine, for example, coastal energy islands designed to generate electricity, AND manufacture hydrogen and/or methane and/or liquid fuels from seawater. The US Navy is pilot testing such a facility to manufacture jet fuel out in the ocean from seawater and CO2. It would be able to do so, at scale, for less than the price of sending tankers around the world to refill the tanks of the carriers. I believe I saw them saying a price of $3-$6 per gallon of JP-5. That should be cost-effective for them, and if it was scaled up to produce commercially interesting volumes, diesel fuel for transportation could be manufactured in a sustainable way.

http://defensetech.org/2012/10/02/converting-sea-water-to-navy-jet-fuel/

There are a lot of angles to the "storage" picture. Pure efficiency isn't the whole picture...just as it is not in the electric power business. For example, peaking combustion turbines are notoriously inefficient, as the heat in the exhaust gases is not re-used. Yet independent power producers (IPPs) rely on fleets of CT's to make money by selling into the market during peak demands, often operating less than 2000 hours per year. Their net heat rates are comparatively abominable, in the 12k to 15k Btu/kwhr as compared to a coal-fired boiler (10k-12kBtu/kwhr) or a combined cycle gas unit (7k-9k Btu/kwhr). Money is still made at a CT's low efficiency, with about the same carbon footprint per kwhr as the coal-fired plant. Not the best approach, but financially feasible.

RWV

July, 22 2014

Richard Vesel says

Ah - the public. Well, Fred, as you surely have noticed, the politicians in Western democracies, at least, will cut technology spending and development if "the public" demands it. In the US, not only did our nuclear industry get knocked into a coma for no good reason, but also our space program. In the 70's and 80's, we had a couple of good technical people running for president, Frank Church and John Glenn, who understood our issues even then, and were including more nuclear in their energy strategies. But they did not have an inspiring message for the public, and their voices were drowned out by the Reaganites and neo-cons, who thought the government should be using less money for everyone, except to insure the stability of the wealthy.

I am not sure how the public will be convinced, until it is perhaps too late, after some series of calamities. If I had the answer to that, I would BE in politics ;-) Getting people to anticipate problems, and move toward solutions, before they become too large is often pretty futile, lol

RWV

July, 22 2014

Ferdinand E. Banks says

If they dont get the energy thing right, there are going to be plenty of casualties. Economic casualties, And I assume that they wont get things right, because that is the way things are in the Big PX these Days.. I'm speaking of course of the American voters, because where Germany and Japan are concerned, the die is cast. It reads NUCLEAR: No Point in mentioning Russia and China..

July, 22 2014

Michael Keller says

At today's power prices, the correct mix is zero renewables. New Power plants are generally not needed, as demand growth is not that great. New power plants should be natural gas fired, as they are the lowest cost producers of available technologies (at least in the US).

Going forward, unless renewable power can compete, if should not be deployed as there is no rationale reason to otherwise use the technology.

July, 22 2014

Michael Keller says

As far as jet fuel from seawater and CO2, my hunch is your numbers are from the same idiots pushing renewable energy for the military at the expense of proper pay and armaments for the folks trying to defend us.

July, 23 2014

Richard Vesel says

I would consider faster access to cost effective fuel as completely non-idiotic.

Considering a land-based approach as well, Pearl Harbor at Hawaii would be an ideal depot for a good chunk of the Pacific fleet, rather than hauling it in by tanker from California refineries.

If you remember your history (or reread it, if necessary), the German war machine fueled itself for years without significant access to oil, so 75 years later, we should be able to accomplish a similar feat more cooperatively and efficiently, don't you think?

July, 23 2014

Michael Keller says

The Germans lost the war. Why would we want to use them as a good example ?

July, 24 2014

Ferdinand E. Banks says

The right examples for the war are no the Germans, but the Allies. The Home Team. We had a chance to win that war months earlier, and blew it. When America came into the war, that was it for the Axis, and every intelligent human being between Washington and Siberia knew it. But unfortunately, on our side intelligent human beings were not giving the orders...except for FDR and Truman, and they were constrained by a stupid belief in Democracy. Abraham Lincoln didn't have that shortcoming.

July, 24 2014

Richard Vesel says

Not arguing at all with the politics of the war. The good guys won on all fronts, thankfully.

I only bring up the fact that the Germans had virtually no access to oil, yet manufactured a lot of liquid fuel anyway. Yes, theirs was based on coal to liquid fuel conversion.

I am counting on the researchers ... with sufficient motivation, I think they can accomplish almost anything in this chemistry and chemical engineering endeavor that would scale up to be economically feasible. And within the requisite 25-30 years or so.

July, 25 2014

Michael Keller says

There are ways to use coal to produce transportation fuels, including a variant of the hybrid-nuclear technology being developed by my firm. However, I not certain the process could compete at today's fuel prices. Basically the reactor produces compressed air to support coal gasification, with superheated steam used in an electrolysis process (power & steam provided by combined-cycle part of the plant) to produce liquid transportation fuels from the gasified coal. Somewhat similar to the process used by the Germans & (more recently) South Africans.

July, 25 2014

Malcolm Rawlingson says

Kirk,

The reason for the rolling blackouts in California is because San Onofre was shutdown and is an omen of things to come if that path continues to be followed. Reliance on intermittent power is a fools errand.

I also question whether a 10 minute start time is anywhere near fast enough to counter the rapid decrease in output from solar panels when clouds pass over head. These can cut output to almost zero in a matter of seconds and is completely outside of the grid control centre to counteract - even with fast start gas turbines. In fact what ACTUALLY happens is these turbines are already running (so they do not need to be started up from cold) and the turbines gas valves are opened to increase power. Thus load increases can occur very quickly. The trouble is of course that the turbines have to be operated in this way to combat rapid fluctuations in renewables which means that renewables increase the amount of fossil fuels burned by requiring these plants to be on line all the time to support them. That is a far cry from what the advocates of these systems say.

Of course this only applies in California where the Sun shines routinely. In Northern climates the Sun does not appear much in the winter. If we were to rely on solar and wind rolling blackouts would occur for about 8 months of the year.

I think we will stick with nuclear in Ontario. At least we know the lights will be on here. I would like to make the boast that we have NOT had rolling blackouts in Ontario and that is entirely due to our very hard working and reliable nuclear fleet. Worth every penny we have spent on it.

Malcolm

July, 27 2014

Michael Keller says

If your combustion turbine plant is already on-line and you then maneuver to cover grid fluctuations, you can cover some changes caused by renewable energy. However, rapid large load changes (including rapid starts and stops) come at a price. Basically, overhauls and parts replacements come more frequently. This is a dirty little secret that the renewable energy folks want to keep hidden. Nor do they want to pay for the additional costs that they cause.

Further, if a conventional power runs less often, then the $/MWh price of the power must go up to pay fixed debt costs. Normally, the power market would sort this out. However, the subsidies (mandates and feed-in tariffs) are completely distorting markets prices, with the end result being the hapless consumer (especially the middle class) getting to pay the additional costs created by the renewable energy parasites.

July, 27 2014

Michael Keller says

As far as start times go, everything has to go well for a combustion turbine to quickly start and come up to power. Combined-cycle plants are slower because of thermal issues with the steam turbine.

The fly-in-the-ointment is typically the pollution control equipment which is generally a little cranky when dealing with rapid events. Also, anything below about 50 to 60% load and you inevitably violate your permitting requirements and can be fined.

Once again, the renewable energy crowd is out-of-touch with reality while wanting somebody else to pay for the true cost of deploying their technology.

August, 01 2014

Richard Vesel says

Reciprocating natural gas engines, operating at 46% efficiency without heat recovery, and over 50% with, made by Wartsila and Cummins, up to 18MW each, are capable of running at very low loads, and ramp to maximum loads in less than 60 seconds. Cold-start to full power in 7 minutes. These are highly modular, and plants can be built with one to fifty of them, at about the same price as a series of lower efficiency combustion turbines.

Almost without exception, everyone here jumps on each article as if the author was trying to promote one single solitary technology as the ONLY solution to world electricity needs. An intelligently planned or financially evolved mix is going to be the answer, with each region getting their own special flavor of the mix, based on the resources most economically available in their location.

So this most likely leaves out solar panels in Siberia, hydropower in Death Valley, hydrogen in Dubai, and coal in Bermuda. Government "subsidies" for new developing and testing new technology are as old as government itself. Government encouragement or outright backing of deployment of those technologies is also pretty old. I don't hear anyone now declaring the Depression Era rural electrification was some kind of useless and out of touch government program. It WAS our government trying to get the entire country to enjoy the benefits of 20th century technology, and insure that all sections of the country were able to participate in the economic picture that the "marketplace" would never have funded. No one now argues about the TVA and the hydro projects they built either. All on taxpayer dollars.

The first commercial nuclear power plants were an offshoot of government funded military technology, and were government funded projects. Oh, and the same for the TVA nuke plants. Why don't you summarily condemn those programs???

What a lack of historical perspective is repeatedly demonstrated here!

I suspect history is likely to prove this collection of naysayers terribly wrong...

August, 03 2014

Michael Keller says

It does not follow that government subsidies lead to success. Indeed, the government has an amazing track-record for picking losers: billions of dollars in the renewable field (anybody remember Solyndra?); billions of dollars on the Next Generation Nuclear Plant; and the list goes on.

In my view, the fundamental problem lies with leaping past development support (R&D) into the "deployment" arena, where the government is simple too ponderous and ill-equipped to deal with the profit complexities of the marketplace. Further, government bureaucrats cannot seem to restrain their desire for more and more power.

As far as TVA's record, they set out to build dozens on nuclear plants, and canceled lots of them after spending lots of money. To be fair, they were not the only ones. However, my point is if you are completely isolated from competition, then bureaucratic excess is unrestrained. That is the recipe for excessive costs. TVA is now going through the throes of massive cost reductions (~$500 million) because competition from private power companies is chewing at their monopoly.

August, 06 2014

Richard Vesel says

TVA would have built (most of) those plants, as well as WPPSS plants, etc., had it not been for TMI and the sudden rabid and baseless anti-nuclear blathering from the left-wing know-nothings, who are equally as useless as right-wing know-nothings ;-)

It is amazingly difficult to craft a good informed consensus, and an action plan + funding strong enough to move forward through the morass of uninformed resistance, counterproductive legislation, entrenched political and financial interests, etc., as well as just plain bad luck.

RWV

August, 10 2014

Fred Linn says

Natural gas is methane, CH4. Methane is both a fossil fuel and a biofuel. Exactly the same stuff. CH4. Fossil natural gas and biomethane can be used mixed in any proportion in any application with no loss of function in any application.

Any system that uses renewable energy in conjunction with natural gas can be a 100% renewable energy system with no alteration. You simply use biomethane instead of fossil methane.

For all of the verbose bluster that goes on around here disguised as informed revelation, nobody seems to be very well informed.

Knowing the difference between a fossil fuel and a renewable fuel seems pretty basic to me.

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