Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Saturday, August 27, 2016

Tesla Powerpack

Tesla has published the cost of its Powerpack batteries (screenshot  below)

So, what is their LCOE (levelised cost of electricity).  Well that depends on how much you can discharge them each time.  This very interesting blog post discusses battery packs and longevity.  It's a long post but well worth reading.  In essence, you do not want to completely discharge or completely charge a lithium-ion battery because battery life is shortened dramatically if you do.  You also don't want it to get too cold or too hot.  The Tesla car battery system has  coolers and heaters to extend battery life so it seems logical that the Powerpack has them too.  (This article suggests that battery degradation in Teslas is remarkably low, even after 150,000 miles)

So let's assume a 60% DoD (depth of discharge) for the Powerpacks with software controls that prevent it going above 85% and below say 20% except in an emergency (with manual overrides).  This would allow far more cycles.  Note that at the end of 10 years, the battery should still have 80% of it original capacity, but I haven't included that in the costings as new batteries are likely to be much cheaper then--old batteries even with 80% of original capacity will be competing against new batteries which will cost 20% of what batteries cost now.  On the other hand, they'll still be usable.

Let's say 10 years, or 3650 cycles, DoD 60%.  That gives a LCOE of around $230 per MWh.  Now according to Lazard's analysis (see next blog post) electricity generated by peaking power gas costs $163 to $218 per MWh.  So in other words, batteries (at least, Tesla's) now cost just a little bit more than the top end of gas peaking.

But batteries have several advantages over gas peaking:

  1. Batteries are 100% green.  Tesla's gigafactory will be 100% powered by solar, and Tesla will be recycling the batteries when they get old.
  2. The response time to fluctuations in the grid is within micro-seconds with batteries, but it can take several minutes for a gas peaking plant to get going.
  3. The cost of batteries is known.  Once installed, there is some minor maintenance but the fuel costs are zero.  A gas plant has to pay for its gas, which fluctuates in price.  Price certainty is always valuable and to be preferred ceteris paribus to price fluctuations.
  4. Batteries are modular, and have a surprisingly small footprint.  So they can be placed next to the generation plant (e.g. a wind or solar farm) or at a substation.  They can be spread across the grid, reducing the need for grid upgrades as demand rises.
  5. Gas peaking power is useful when demand is "too high" but batteries are useful when demand is both "too low" and "too high".  When the wind is strong at night but demand is low, or when in midsummer solar produces "too much" power because baseload power plants can't be switched off, so that the wholesale price plunges or even goes negative, batteries can store that power for when demand is "too high".
Battery costs have fallen 70% over the last 18 months.  Before the last 18 months, battery costs were falling by 15% per annum.  So, let's be conservative and assume costs go back to a 15% per annum rate of decline.  That means that in a year's time, electricity from Tesla's Powerwall will cost $195 per MWh.  In two years' time, it'll be down to $165 per MWh--the same as the cheapest gas peaking.  In three years, $140 per MWh.  Let's do a back-of-envelope costing of a grid powered by solar and wind at $40 per MWh in 3 years' time (costs falling by 10 to 15% per annum), with 8 hours of battery storage.  That gives us $40 plus 1/3 of $140, or $87/MWh, not much more expensive than the cheapest coal, even excluding carbon taxes.

Does that mean we can go to 100% renewables without other solutions?  No, not quite, though we could easily go to 70%.   Batteries will cope with daily demand fluctuations but not seasonal ones.  Power to gas (the Sabatier process) might be part of the solution, in which case we may keep our peaking power gas plants.  On the other hand we may not: it's much more efficient to produce hydrogen by electrolysis and burn it later when needed that to produce hydrogen and then add the next step of producing methane.  Hydro is another: Australia's Snowy River Hydro system for example will most likely end up producing most of its power in winter, to provide for winter electricity demand in SE Australia, not spread it across the year as it does now.   CSP (concentrated solar power) yet another.

One last point.  The introduction of batteries into the grid will put coal and nuclear at a disadvantage.  Not only is the average cost of wind and solar cheap, the marginal cost of wind, solar and batteries is virtually zero. On the other hand, because coal and nuclear can't easily be scaled up or down, and because there is fuel cost involved, their marginal costs are not zero.  So any grid operator/utility at the margin will favour wind and solar if it has battery storage.  This will increase the costs of baseload generators like coal and nuclear because their costs will have to spread over fewer hours and smaller capacity.  You can see this already happening in China.  Batteries will force the grid towards renewables, because renewables are cheaper and preferring them will make baseload power even more expensive.  And that process is starting now.

Monday, August 1, 2016

Cost of Different Electricity Sources

Lazard has been producing this chart for a couple of years now.  Over the last few years, the cost of renewables (shown in the top half of the graphic) has fallen steadily (i.e., moved to the left).

Click on the chart to enlarge it to a more readable size

Wind and solar are clearly the cheapest.  In fact, the most recent contract signed in Dubai is at just 3 cents per kWh ($30 per MWh), as marked by the dashed yellow line.  Dubai is in the desert, latitude 25 degrees, and it has lots of sun. Solar in Australia, the US south-west, Africa, India wouldn't be much more expensive than this.  The cost of solar in northern Europe on the other hand would be higher, but the cost of wind would be lower.

Note also how cheap CSP (concentrated solar power with storage) is.  Dubai has just announced the world's largest and cheapest CSP project, which will deliver power 24/7 for just 7 cents per kWh or $70 per MWh, way below the $119 in the chart.  The only fossil fuel generating process cheaper than that is Gas Combined Cycle.

In addition, the assumption in the costings is for an 8% interest rate.  In the case of solar (PV), CSP and wind there is no fuel cost--virtually all the cost is the upfront cost of capital.  Which means that at a lower interest rate the costs of these technologies would be lower.  Governments right now can borrow at 2%, which would slash the cost of renewables.  I'd be interested to know by how much.

The picture of the structure of the grid is clear: utilities will preference wind and PV to the maximum extent practicable, which for large scale grids (as opposed to smaller areas within and well connected to larger grids) is 50% and  maybe as high as 70%

This will be complemented by gas-fired generation.  Right now burning gas adds to atmospheric CO2.  Michael Liebreich, head and founder of BNEF, talked about power to gas in his keynote presentation to the BNEF annual conference in April.  Audi calls it e-gas. Water is split by electrolysis into hydrogen and oxygen; the hydrogen is passed over a catalyst in a stream of carbon dioxide producing methane, indistinguishable from its natural counterpart. The source of the CO2 stream can be the byproduct of a biomass plant or .... the escape vents of a gas-fired power station, producing in effect a closed system.  (Extracting CO2 from the atmosphere is feasible but expensive.)  And most developed countries have an existing natural gas grid with extensive storage.

This kind of mix is exactly what the US is installing now.   Cheap solar, cheap wind, and gas to fill the gaps.  And potentially, the gas can be produced from surplus wind and solar.  I haven't mentioned batteries, or extending the grid, both of which are additional options to allow higher percentages of renewables in the total.

Only inertia, ignorance and the bizarre opposition of the Right is stopping us from rapidly switching to 100% renewable electricity generation.

Monday, July 25, 2016

Germany reaches 36% renewables

Germany has reached 36.4% renewables (including hydro) in total electricity generation, four years ahead of schedule.  The target for 2025 is 40-45%.  Germany is the world's 5th largest economy.

Read more here

Sunday, July 24, 2016

Vote your conscience

By cartoonist Kevin Siers

El Niño's over -- but global temps still high.

The El Niño has ended, yet global temperatures remain very very high.   The dotty denialist explanation of the temperature spike over the last couple of years is "El Niño", not understanding that what happens is that heat is absorbed into the surface layers of the world's seas, only to be released later during the El Niño event.  The heat got there in the first place because of greenhouse gases, mostly CO2,  The last big El Niño event was in 1998.  Denialists chose 1998 as their starting point for the argument that there was a "pause".  Wonder what they're saying now?

We need to do more to switch to renewables.  Even though wind and solar are cheaper than coal, we are still not transitioning fast enough to economies powered by 100%  renewables.  We need to move faster.  Time is running out.

(Click on chart to enlarge)

Saturday, July 23, 2016

Texas is a wind power giant

It seems odd that the greatest oil state should be such a US wind power giant.  Yet, because the wind blows steadily and strongly across the state, the potential is there, and is being realised.


  1. Texas was the first state to reach 10,000 MW of wind capacity.  Last year total capacity reached nearly 18,000 MW.
  2. Texas has received the most investment in wind of any US state--US$32.7 billion, and employs the most workers in wind too (24,000)
  3. Wind now supplies 10% of total electricity generated (compared with 35% from all green sources in Germany).  On some occasions wind supplies 40%.
  4. Wind is now the cheapest source of energy in Texas:  An analysis by Lazard, LLC found that the cost of wind production in Texas averages between $36–51 per megawatt-hour (MWh), not including government subsidies.  Coal costs, on the other hand, range from $65–150 per MWh and gas from $52–218 per MWh. Bloomberg New Energy also reported that wind energy is cheaper than fossil fuels, citing the levelized cost of energy from wind in Iowa and Texas is lower than the levelized cost of coal at $59 per MWh – again, without subsidies.
((Read more here.)

What this implies is that the percentage of wind in the total power mix in Texas is going to keep on rising.  Wind power is no longer being installed just because we want to reduce carbon emissions.  Now it's also cheaper than the fossil fuel alternatives.  This makes the pressure to switch compelling. 

How will  the Texas grid deal with the fact that even in Texas, the wind doesn't blow all the time?  

Well, for a start, utilities are already using gas-fired peaking power plants, and that's likely to continue until storage is cheap enough to price them out of the market.

The cost of battery storage is in fact plummeting.  But at this stage it's still too expensive to provide days of storage for the whole grid.  It will be cheap enough to provide enough storage (3 to 4 hours' worth) for the evening ramp up. 

Texas also has strong solar resources.  The Tesla Solar City merger is about  Tesla doing for solar panels what it's doing for EVs.  One of the reasons rooftop solar costs so much more in the US than it does here in Oz is the cost of gaining a client.  Tesla intends to slash that cost.   I expect that the uptake of rooftop solar is going to pick up sharply.   And given that it's Tesla, it will be combined with behind-the-meter storage.

The Texas grid system will need more links with the Eastern Interconnection, the grid which covers all the states east of the Rockies.  The truth is that the wind is always blowing somewhere, and wind farms which are far enough apart can produce baseload power.  When the wind's blowing hard in Texas, it'll sell its surplus power to the east, and vice versa.  Germany copes with its 35% renewable component because of its extensive links to the European grid.  It exports power to France when it has a surplus, and imports from Norway's dams when it is short.

There are states in the US which oppose a switch to renewables.  The slide in the costs of wind, solar and CSP makes this an increasingly quixotic venture.  And anyway, if California (the world's sixth largest economy), Texas (the world's 11th), New York State (the world's 12th) , and the wind-belt states switch, the nation-wide switch to renewables will accelerate.