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Sierra Club Palo Verde Group PVG July, 2016, Program Electric Utilities vs Solar Energy Enterprise

Explore the growth and challenges of solar energy business nationally and globally, advantages and disadvantages, technological, societal, and economic factors, and potential impediments to growth. Discuss photovoltaic systems, utility response, and utility issues in adapting to renewable energy disruptions. Learn about the impacts on electrical utilities and the evolving business models in the solar industry.

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Sierra Club Palo Verde Group PVG July, 2016, Program Electric Utilities vs Solar Energy Enterprise

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  1. Sierra Club Palo Verde Group PVG July, 2016, Program Electric Utilities vs Solar Energy Enterprise Ronald Roedel Emeritus Professor of Electrical Engineering Arizona State University July 21, 2016

  2. Ronald Roedel: Email: r.roedel@asu.edu Webpage: http://roedel.faculty.asu.edu Main Affiliation: Professional Science Masters – Solar Energy Engineering and Commercialization: http://semte.engineering.asu.edu/solar-energy-engineering-commercialization

  3. The Solar Enterprise Both nationally and globally, the solar business has grown by leaps and bounds in the last two decades Current US Solar Power 29.3 GW

  4. US Photovoltaic (PV) System Installations SEIA [1]

  5. The Solar Enterprise Both nationally and globally, the solar business has grown by leaps and bounds in the last two decades Current US Solar Power 29.3 GW (2% of US electricity demand)

  6. The Solar Enterprise SEIA [1]

  7. Advantages to solar power • Inexhaustible input power • The sun’s lifetime is billions of years • Direct conversion to electrical power • Optical energy -> Electrical energy • Zero emissions during operation • No carbon footprint • Earth-abundant raw material supply (for cells) • Silicon is the most abundant element in the earth’s crust • Reliable and durable technology

  8. Disadvantages to solar power 1. It is an intermittent energy resource • Night and day 2. It adds instability to the electrical grid • Clouds, shadowing produce output with fluctuations 3. It has low power density • 80% of incident sunlight is unused 4. Its power curve does not match the system demand profile • With higher penetration, its marginal value shrinks to zero 5. It is a disruptive technology • It produces “load defection”, possibly followed by “grid defection”

  9. What has fueled this growth? • Technological Factors • Silicon solar cells and modules • Inexhaustible input power at zero cost • Societal Factors • Concerns about fossil fuel and nuclear power plants • An increasing awareness of sustainability issues • Economic Factors • Steady reduction in cost of PV systems • Favorable government policies and business climate

  10. What might impede this growth? • PV system components • Dependence on materials that are not earth-abundant • High labor costs • New PV system components • Problems with smart components • Certain economic and business factors • Hostile interactions with utilities, utility regulating bodies • Net metering issues • Power demand charges • Expansion of low cost natural gas supply and use in utility scale electricity generation • Recent analysis showing that solar energy suffers from a “merit order effect” which will shrink its value with increasing penetration into the energy market

  11. The Photovoltaic (PV) System A photovoltaic system (or PV system) is an engineered system that carries out these operations: • Absorption of incident solar radiation (optical energy) • Conversion of the absorbed solar energy to DC electrical energy • Controlled transfer of the DC electrical energy to a storage device (such as an array of batteries) • Controlled inversion of the DC electrical energy to AC electrical energy • Controlled transfer of the electrical energy to electrical loads or to the electrical grid

  12. Typical Grid-tied Photovoltaic (PV) System PV system Solar Meter Utility Service Panel UtilityMeter To House Loads

  13. The Real Problem • The Solar Enterprise needs the Electrical Utilities and the Electrical Grid BUT • The Electrical Utilities and the Electrical Grid do not need the Solar Enterprise

  14. The Solar Enterprise The growth in all renewable energy systems has produced challenges for the electric utilities that must be viewed as disruptive Warren Buffett recently stated, “Solar and Wind Power could erode the economics of the incumbent utility!” The Edison Electric Institute wrote “the cycle of decline [utilities are facing] has been previously witnessed in technology-disrupted sectors (telecommunications and airlines)” [2]

  15. Some (seldom mentioned) Utility Issues David Roberts, Grist, 04/10/13 [3]

  16. Some (seldom mentioned) Utility Issues • The electrical power generated by distributed PV (and other renewable approaches) is not generated and sold by the utilities • A belief that increasing PV deployment will lead first to load defection and ultimately to grid defection • The utilities make money from a guaranteed return on capital investment, and since they don’t own the PV systems, they can’t add that value to the rate base

  17. The Utility Response • Fight, hammer and tong, the changes to the traditional model • Recognize that renewable energy systems are here to stay, so develop and embrace a new business model that has a new outlookand generates a novel partnership among all stakeholders • Wait and see

  18. The utilities that fight the changes • Propose eliminating or altering the net electrical metering (NEM) policy This proposal is related to the energy content of both the solar produced electricity and the utility produced electricity Utilities have never expected or planned to buy power from residential or commercial sources, and they do not like doing it now

  19. The utilities that fight the changes • Propose adding a demand charge to the monthly bill of the utility residential customer This proposal is related to the electrical power delivered by the utility For decades, utilities have charged their residential customers only for the electrical energy. No Investor Owned Utility (IOU) has ever charged for the electrical power

  20. A Quick Review of Energy and Power • Energy is a measurement of capacity to do work. It is expressed in units of joules (J) • Power is the rate at which energy is employed. It is expressed in units of watts (W). One watt equals one joule per second

  21. A Quick Review of Energy and Power PE = mgh h PE = 0

  22. A Quick Review of Energy and Power • Lets suppose a ball is moved to the top of the ramp, and it gains potential energy of • If the ball is moved to the top of the ramp in 100 seconds, the power required to do this is • If the ball is moved to the top of the ramp in 1 second, the power required to do this is

  23. A Quick Review of Energy and Power • Electrical Energy is the energy contained in electrons and other charged particles; Electrical Power is the rate at which electrical energy is delivered to an “electrical load” • Electrical Power is measured in watts (W); but conventionally, Electrical Energy is measured in kilowatt-hours (kWh) • Electrical Power is calculated by multiplying the Electrical Current and the Electrical Voltage in the electrical device • Current is a measure of the flow of electrons (amperes) • Voltage is a measure of the potential energy (volts)

  24. Photovoltaic (PV) Systems Residential Scale Non-residential Scale Utility Scale • Self-consumption • Power export • Peak shaving • Self-consumption • Power export • Direct power export to the grid

  25. Grid-Tied PV Systems – The Design Process Design Steps in a Residential Scale System • Examination of site and estimation of performance • Securing financing • Carrying out PV system engineering and design • Securing relevant permits • Construction • Inspection • Connection to the grid • Performance monitoring

  26. Motion of Sun Diagram – Perspective View

  27. Step 1 - Examination of site and estimation of performance South vs West

  28. Step 2 – Securing financing • Cash Purchase (35%) • Dealer Credit (5%) • Power Purchase Agreement • Solar Lease (60%) • Monthly terms • Prepaid structure

  29. Step 3 - Carrying out PV system engineering and design Evaluation of electrical consumption Average annual usage – 5300kWh

  30. Step 3 - Carrying out PV system engineering and design Comparison of electrical consumption to solar electricity production • Annual total electrical usage – 5300 kWH • Annual total solar electricity production – 6300 kWh • PVWatts [4] • 3500 W system, 18o tilt • Ratio: 6300/5300 = 1.19 • By APS regulations, the ratio cannot exceed 1.25

  31. Step 3 - Carrying out PV system engineering and design • Special overlay districts • Architectural considerations • Zoning ordinances • Setbacks, elevations, materials • Building permits • Construction practices; electrical enclosures, wiring, components • Engineering approvals • Mechanical considerations • Utility agreements • Connection arrangements; netmetering rules; electrical signal quality

  32. Grid-Tied PV Systems – The Design Process Step 5 – Construction Step 6 – Inspection Step 7 – Connection to the grid Step 8 – Performance monitoring

  33. Step 5 - Construction

  34. Policies impacting Residential PV Systems • Renewable Portfolio Standards (RPS) • Often has a “solar carve-out” – a portion of the RPS must be met by Distributed Generation (DG), or rooftop solar • Incentives • Federal Investment Tax Credit (ITC) – Reduces Initial Investment • Had been scheduled to end 12/2016; recently extended to 2021 • State Tax Credits • Utility incentives • Public Utility Commission Policies • Net Electrical Metering – Reduces Annual Cash Payments • Presently under review (attack?) in 41 states

  35. Step 8 – Performance Monitoring 3.5kW system installed in August, 2014 Elevated structure 14 Canadian 250W poly-Si modules 14 Enphase micro-inverters Enphase monitoring solution Installed cost: $13,450 $3.84/W (dc) Incentives: Installer rebate: $1,000 Federal ITC: $4,035 State Solar Incentive: $1,000 Total out-of-pocket cost: $7,415 $2.12/W (dc)

  36. Recent Performance

  37. Step 8 – Performance Monitoring

  38. Net Metering • At the end of each month, a utility bill is calculated: Electricity Generation = Number of kWh purchased from utility (after self-consumption) – Number of kWh exported to utility – Residual credits (in kWh) from “energy bank” • This is all carried out at the retail rate • Once a year, the residual credits are cashed in: • This is carried out at the wholesale rate • For APS, the “settle-up” date is 12/31

  39. Net Electrical Metering – Case 1 PV input = 0 PV system Solar Meter Utility Service Panel UtilityMeter To House Loads UM runs forward

  40. Net Electrical Metering – Case 2 (Self-Consumption) PV input < Utility input PV system Solar Meter Utility Service Panel UtilityMeter To House Loads UM runs forward, but reduced

  41. Net Electrical Metering – Case 3 (Power export) PV input > Utility input PV system Solar Meter Utility Service Panel UtilityMeter To House Loads UM runs in reverse

  42. Net Metering Crossborder Energy, 02/25/16 [5]

  43. Residential PV System, 2015 performanceNet Metering Value of electricity = 5225*0.123 + 960*0.030 = $672

  44. Economic Analysis Current residential PV system example • Assume that the installed cost of a 3.5kW PV system is $2.12/W after all incentives are accounted for. Assume that the system will produce an annual electrical amount of 6250 kWh (as measured). Assume the utility cost of electricity as $0.123/kWh. • The plan here is to calculate the Life Cycle Cost on both an annualized and cumulative basis, and see when it crosses zero

  45. Residential PV System Simplified Cash Flow Diagram Increased by NEM Reduced by ITC

  46. Residential PV System Plotting the cumulative return for 25 years Payback – 10 years

  47. Pressure on existing solar policies • The situation • 41 states have mandatory net-metering policies (for residential and community PV) • It was 43 states, but Hawaii and Nevada have replaced net metering with net billing • In 2015, 46 states took some form of solar policy action, 30 considered or enacted changes to net-metering rules • Hawaii grandfathered existing net metering customers • Nevada eliminated net metering for all solar customers • California adopted “NEM2.0” – net metering continues, but the 3 large IOUs no longer have to offer net metering after July 2017

  48. Pressure on solar policies, cont. • The situation in Arizona • UNS Electric:General Rate Case • Net Metering, Fixed Charges, and Demand Charges • Filed 05/15; Hearings at ACC 03/16 • Docket E-04204A-15-0099 • Tucson Electric Power (TEP): Gen. Rate Case • Net Metering, Fixed Charges, and Demand Charges • Filed 11/15; Hearings at ACC 08/16 • Docket E-01933A-15-0100 • AZ Public Service (APS):Gen. Rate Case • Net Metering, Fixed Charges, and Demand Charges • Filed 06/16; Hearings not yet announced • Docket E-01345A-16-0036

  49. APS proposal • Fixed charge increase for all rate payers • $8.67/mo $14.50/mo (R2) • $16.91/mo  $24.00/mo (R1 and R3) • Elimination of net metering, replacement with net billing for new solar customers • New power demand charge • UNS had proposed demand charge for all rate payers, but decided to keep it only for solar customers

  50. APS – Net Billing • Import energy from APS - $0.123/kWh • Export energy to APS - $0.0299/kWh • Settle account at the end of every month – no “energy bank” permitted, although credits carry forward

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