HIGH COSTS OF WIND AND SOLAR AND SOLAR/BATTERY SYSTEM COMBOS

New England wind and solar electricity generation is much more expensive, c/kWh, than elsewhere in the US; wind electricity cost in the US south is even higher than in New England. See URLs and table 2.

 

Here is a partial list of the various subsidies for wind and solar that artificially lower their electricity costs. Those costs would be much higher without subsidies, and higher still with the addition of the costs of:

 

1) Peaking, filling-in, and balancing the variable, intermittent wind and solar, 24/7/365, by the traditional generators

2) Grid expansions and reinforcements.

3) Storage systems. Cost items 1), 2) and 3) are not shown in table 2.

 

It would be appropriate to charge the owners of wind and solar systems for the costs of:

 

- The grid expansions and reinforcements, and storage systems to accommodate their wind and solar systems

- The traditional generators to operate less efficiently, because they are required to operate in ramp up/ramp down mode, at part load (instead of steadily and closer to base-load) to perform peaking, filling-in and balancing to provide the varying electricity difference = (demand, at a certain time - variable wind and solar, at that time). See Note.

 

NOTE: A car, if operated at varying speeds, has lower mileage and more wear and tear, than a car operated at a steady speed. The same is true for traditional electricity generators.

 

http://www.windtaskforce.org/profiles/blogs/the-true-cost-of-solar-...

http://www.windtaskforce.org/profiles/blogs/the-true-cost-of-wind-e...

http://www.windtaskforce.org/profiles/blogs/the-reality-of-wind-ene...

http://www.windtaskforce.org/profiles/blogs/a-very-expensive-offsho...

 

Subsidies and Cost Shifting are the Lifeblood of Wind and Solar: The prices, c/kWh, of wind and solar power purchase agreements, PPAs, are significantly reduced, mostly due to the various subsidies and cost shifting onto the general public of:

 

- Variability and intermittency

- Grid expansions and reinforcements  

- Storage systems

 

Various Subsidies for Wind and Solar: Because of the various subsidies and cost shifting, taxpayers and ratepayers are forced to pay 1) higher monthly electricity bills, 2) higher prices for goods and services, and 3) higher taxes. Here is a partial list:

 

- The federal ITC, 30% of the qualified portion of the turnkey capital cost. The federal ITC is an upfront, tax credit that can be applied against any of owner’s taxes.

- The state ITC, usually a percentage of the federal ITC. The state ITC is an upfront, tax credit that can be applied against any of owner’s taxes.

- The federal production tax credit, PTC, of 2.4 c/kWh for the first 10 years of operation, a subsidy of 2.4/5 = 48% of the US average wholesale price. No wonder owners are crowing about underbidding traditional generating plants. For example, in areas with good winds, low construction costs and low operation and maintenance costs (Texas, Great Plains), if an owner’s cost is 7.3 c/kWh and he deducts 2.4 c/kWh as PTC, then his bid price could be 4.9 c/kWh, which is sufficient to get the contract, in most cases, and “competitive” with traditional plants. 

- The federal and state tax savings due to rapid depreciation write-offs in about 5 to 6 years, much more rapid than normal utility equipment write-off schedules of 10 to 20 years. Having tax savings earlier, instead of later, is financially more advantageous.

- The exemption of equipment purchases from the state sales tax and from the education property tax.

- Selling wind electricity at generous feed in tariffs of about 9 - 10 c/kWh in areas with high capital costs and low capacity factors (CFs), such as New England.

- Selling solar electricity at generous feed in tariffs of about 13.5 - 14.5 c/kWh in areas with high capital costs and low capacity factors, such as New England.

- Selling renewable energy credits, RECs, which lower the utility purchased RE energy cost by up to 50%.

- Loan guarantees by the federal and state government, which lower the interest rate of the funds borrowed from private entities, because the federal and state government assume the risk of the loans.

 

Wind and Solar a Boon to Multi-millionaires: Warren Buffett, considered one of the outstanding investors of all-time, has stated: “On wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit”. Buffett has investments in multiple wind sites, as do many other multi-billion dollar entities. Buffett and his cohorts hire tax accountants/lawyers to refine the subsidy-milking art form, as well as PR pros and RE lobbyists to continually increase the milking, via higher RPS targets and renewed subsidy periods.

 

NOTE:

Wind ITC and Wind PTC decrease in 2017, 2018, 2019, and expire in 2020.

Solar ITC decreases in 2020, 2021, and expires in 2022.

 

Comparing LCOEs of Wind and Solar with Traditional Plants: Studies comparing levelized costs of energy, LCOEs, of wind and solar plants with those of traditional plants are invalid, if:

 

- The various subsidies and the cost shifting are not properly accounted for.

- Useful service lives are assumed too long for wind and solar and too short for traditional plants.

- Capacity factors, CFs, are assumed too high for wind and solar and too low for traditional plants.

 

Benefits of Subsidies for Solar Systems: In Vermont, a solar system, field-mounted, 2000 kW, turnkey capital cost about $5.9 million, produces about 2794 MWh/y, and has revenues of about $365,000/y under the VT Standard Offer program.

 

As a result of the various subsidies, about $3.5 million of the $5.9 million turnkey capital cost is returned to owners in the first 6 years as:

 

1) Federal and state taxes not paid

2) Federal and state ITC cash gifts

3) Price bonus above midday wholesale.

 

See table 1. A similar table would apply to wind projects.

 

	Table 1/Year	1	2	3	4	5	6	6-y total
	State tax not paid	42996	78104	41169	18803	18337	1227	200636
	Fed tax not paid	161996	294270	155112	70845	69087	4623	755933
1	Total tax not paid	204992	372374	196281	89648	87424	5850	956569
	State ITC cash gift	185714						185714
	Fed ITC cash gift	1190475						1190475
2	Total ITC cash gift	1376189						1376189
	Total tax subsidies	1581181	372374	196281	89648	87424	5850	2332758
	Paid to owners for electricity							2158559
	Wholesale cost at 6 c/kWh							993507
3	Price bonus above wholesale							1165052
	Total subsidies							3497810

 

Table 2 shows typical costs for wind and solar in New England. The first three rows are from NE power purchase agreements. The last row is the feed-in price paid by GMP, which is about the same as the subsidized cost of generation.

 

Table 2	Subsidized	Unsubsidized
Ridgeline wind	9 - 10 c/kWh	About 15 c/kWh
Offshore wind	18 - 20 c/kWh	About 25 c/kWh
Utility-scale, field-mounted, solar	13.5 - 14.9 c/kWh	About 20 c/kWh
Residential rooftop	19 c/kWh	About 25 c/kWh
H-Q hydro, per latest GMP contract	5 - 7 c/kWh	No Subsidies

New England Wholesale Prices The annual average wholesale price of New England electricity has been about 5 c/kWh since 2009. At night it may be about 3 cents. At midday, it may be about 6 cents, and at late afternoon/early evening (peak hours), when wind and solar usually are minimal, it may be 7 to 8 cents, with rare short-time spikes to higher values. See URLs.

 

New England Solar Much More Expensive Than Elsewhere: Pro-RE interests are claiming solar (heavily subsidized) is competitive with fossil in some very sunny areas of the US (Texas, Arizona, New Mexico, etc.). 

 

However, that is far from reality in not-so-sunny, variably cloudy New England, as proven by energy prices of the 4 competitively auctioned Standard Offer projects in Vermont.

 

Standard Offer is a Vermont solar system subsidy program that pays high feed-in rates, on top of other federal and state subsidies, to attract capital investment from mostly out-of-state multi-millionaires with risk-free tax shelters.

 

Table 3 shows the results of the 4 auctioned Standard Offer projects, and of the recently commissioned Elizabeth Mine project. See URLs.

 

http://www.windtaskforce.org/profiles/blogs/vermont-speed-renewable...

http://www.windtaskforce.org/profiles/blogs/from-brownfield-to-gree...

 

Table 3	Start	Type	Production	Capacity	Rate	Paid
Auctioned SO Projects			MWh	kW	c/kWh	$/y
Champlain Valley Solar Farm	Jul 24, 2015	Solar	2,794	2000	14.41	402,615
Otter Valley Solar	Aug 30, 2017	Solar	2,769	2180	13.38	370,492
Pownal Park Solar	Dec 30, 2016	Solar	2,794	2200	10.96	306,222
Sudbury Solar	Apr 18, 2016	Solar	2,540	2000	14.40	365,760
Total			10,897	8,380	13.26	1,445,090
Regular SO Project
Elizabeth Mine		Solar	8,675	7000 DC	14.90	1,292,575

 

ECONOMICS OF GMP’S STAFFORD HILL “MICROGRID/ISLANDING” PROJECT

Microgrids and islanding are the wave of the future, as envisioned by GMP. Such setups include solar systems combined with battery systems, plus heat pumps for building heating and cooling, Powerwall 2.0 batteries at user premises, demand management by turning on/off user appliances, and, in the somewhat distant future, the management of EV batteries. 

 

Other Measures Should Come Before Microgrids and Islanding: Long before the GMP vision could possibly be realized at an acceptable cost, it would be much wiser, and much more economical, to first insulate and seal almost all buildings to be close to “zero-net-energy” or “energy-surplus”, and to have almost all light duty vehicles as high-mileage hybrids, such as the Toyota’s Prius hybrid, rated at 52 EPA Combined.

 

Those two measures would actually reduce the energy bills of already-struggling households and businesses, and would significantly reduce the CO2eq emissions associated with the building and transportation sectors, which emit about 65% of Vermont’s 8.3 million metric ton of CO2eq emissions.

 

Vermonters have absolutely no need for EVs (and associated charging stations all over the state), which perform poorly in winter, on muddy dirt roads, with snow on roads, and going uphill. How many all-wheel-drive EVs and 4-wheel drive EVs are being marketed? Regarding EVs, the wisest approach would be to wait at least 5 years.

The Need for Battery Systems: With many solar systems on a distribution grid, their output would become highly variable/irregular during variable cloudy weather, as already is the case in southern California and southern Germany. Battery systems are required to quickly “smooth” the variations/irregularities. The levelized cost of those battery systems is not charged to solar system owners, the disturbers of the grid.

 

See Figure 13 of the second URL. It shows the extremely variable output (blue line) of the Stafford Hill solar system, which is entirely due to variable cloudiness. Without batteries, or some other quick-acting regulating system, the local grid would be unstable and various items of equipment would shut down.

http://www.windtaskforce.org/profiles/blogs/solar-energy-does-not-r...

http://www.sandia.gov/ess/publications/SAND2017-6164.pdf

Stafford Hill solar/battery system combo, owned by GMP

Battery system: 4 MW/3.4 MWh; turnkey cost $5.345 million; $1572/kWh

Battery system operated to deliver 2 MW for 1.7 hour, for a total of 3.4 MWh

Solar system: 2.5 MW DC/2.0 MW AC; turnkey cost $7.155 million

Total = $12.5 million

 

NOTE: The Sterling Municipal Light Department started the operation of its solar/battery system combo a few months after the Stafford Hill solar/battery system combo. See URL.

http://www.windtaskforce.org/profiles/blogs/solar-energy-does-not-r...

 

Sterling, MA, solar/battery system combo, owned by Sterling Municipal Light Department

Battery system: 2 MW/3.9 MWh; turnkey cost $2.7 million; $692/kWh

Battery system operated to deliver 2 MW for 1.95 hour, for a total of 3.9 MWh

Solar System: 2.4 MW (existing); turnkey cost about $7.0 million

Total = $9.7 million

Stafford Project Economic Payback

 

Solar System: The solar system part of the project has estimated federal and state tax savings due to rapid 5-y depreciation and due to the federal and state ITCs, i.e., up front cash gifts. See table 4.

 

Table 4/Year	1	2	3	4	5	6	6-y total
State tax not paid	52154	94740	49938	22808	22243	1488	243371
Fed tax not paid	196501	356950	188151	85935	83803	5608	916947
Total tax not paid	248655	451690	238089	108743	106045	7096	1160318
State ITC gift	225271						225271
Fed ITC gift	1444046						1444046
Total ITC gift	1669317						1669317
Total subsidies	1917973	451690	238089	108743	106045	7096	2829635

 

Battery System: The battery system part of the project has estimated federal and state tax savings due to rapid 5-y depreciation and due to the federal and state ITCs, i.e., up front cash gifts. See table 5.

 

Table 5/Year	1	2	3	4	5	6	6-y total
State tax not paid	38954	70762	37299	17036	16613	1112	181776
Fed tax not paid	146768	266609	140531	64186	62593	4188	684875
Total tax not paid	185723	337371	177831	81221	79206	5300	866652
State ITC gift	168257						168257
Fed ITC gift	1078570						1078570
Total ITC gift	1246827						1246827
Total subsidies	1432550	337371	177831	81221	79206	5300	2113479

GMP Riding the Subsidy Gravy Train and Getting Big Rate Increases: GMP has been befuddling legislators by promoting the dubious merits of its extremely expensive, heavily subsidized “microgrid/islanding” fantasy with solar/battery combos, while enriching itself with the associated federal and state ITCs, federal and state tax savings due to rapid depreciation write offs, and is authorized to earn 9.1%/y on its $1.433 billion rate base. All that at heavy cost to ratepayers.

 

A 5.02% rate increase for 2018 (with more such increases to come in future years) was negotiated, behind closed doors, between DPS and GMP. DPS sent the agreement to the PUC, which approved it without public hearings. DPS claimed “a team of experts that included DPS staffers and external consultants pored over thousands of GMP documents”.

 

The rate increase for residential ratepayers is $12.9 million, and for commercial, industrial and other ratepayers $16.9 million, for a total of $29.8 million. In 2017, GMP had revenues of $624 million, down from $650 million in 2016.

Regarding the Stafford Hill solar/battery system combo, 

 

GMP collects for the solar part about:
– $1.16 million as state and federal taxes not paid due to write offs in the first 6 years
– $1.67 million as state and federal ITC cash gift to immediately offset taxes on profits
– Nets 9%+/y on the solar asset. 

 

GMP collects for the battery part about:
– $0.87 million as state and federal taxes not paid due to write-offs in the first 6 years
– $1.25 million as state and federal ITC cash gift to immediately offset taxes on profits
– Nets 9%+/y on the battery asset

 

Project Payback Period:

 

1) With various grants, subsidies, federal and state ITCs, and tax benefits of 6-y depreciation write-offs, a total of 2.83 million + 2.13 million = $4.94 million, the rosy illusion is created of a payback of 5 - 6 years, as claimed by GMP in a press release.

NOTE: A study by Sandia Laboratories shows cash flow will become positive in year 8. However, table 5 in the study omits a large number of categories of annual costs. It these costs were accounted for in the table, the cash flow would not be positive until year 10 or 12., or worse, i.e., it may never be positive. See below section “Unidentified/unaccounted for gains and costs”.

http://www.sandia.gov/ess/publications/SAND2017-6164.pdf

2) Without various grants, subsidies, federal and state ITCs (which are scheduled to be decreasing), and tax benefits of 6-y depreciation write-offs, and adding in certain major costs that likely were not counted, the payback is at least 2-3 times the GMP claim, longer than the warrantee life of the batteries.

 

3) The payback may not exist, due to the annual costs exceeding the annual revenues, as shown below.

 

4) If the below cost items were fully identified and accounted for, the project would be drowning in red ink.

- GMP claiming this project has a 5-6 year payback and to not detail these costs is self-serving and deceptive.

- GMP gain items, see below, ultimately are reflected in economic costs. There is no free lunch.

- GMP cost items not shown or mentioned are financial costs and O&M costs. They are added to the rate base.

Unidentified/unaccounted for gains and costs:

 

- The GMP gain of federal and state tax savings. See table 4 and 5

- The GMP gain of federal and state ITCs. See table 4 and 5

- The GMP gain of 9+%/y on assets

 

- The amortized cost of borrowed money for the battery system*

- The amortized cost of any other borrowed capital

- The replacement of about 75% of the battery system in about year 15, or sooner.

- Charges of GMP personnel

- Use of other GMP resources

 

* The amortized cost of borrowed money for the solar system is already reflected in the price of 13.5 c/kWh.

 

Advocating more of such heavily subsidized projects would be great for GMP, but very expensive for already-struggling households and businesses trying to make ends meet in a near-zero, real-growth Vermont economy. Such poor-return projects would build up an increasingly stronger headwind against Vermont’s economy.

 

NOTE: The project, owned by GMP, is not eligible for Standard Offer status. GMP cannot sell its electricity for about 13.5 c/kWh. However, GMP is allowed to earn 9%/y on assets. That cost is significant, but is not shown in above table, as are several other major costs.

 

NOTE: GMP, a Canadian entity, is collecting money from Vermonters to pay Canadian owners. The US debtor status was $8.3 trillion at end 2016, on which foreign entities collected at least $415 billion (5%) to pay foreign owners, foreign pensioners, etc.

http://www.windtaskforce.org/profiles/blogs/cop21-flawed-trade-agre...

NOTE TO LEGISLATORS:

- Tables 4 and 5 show, GMP has been avoiding federal and state taxes and collecting federal and state ITCs.

- GMP, Standard Offer project owners, et al., want to continue the gravy train to “fight global warming”.

- The legislative largesse, however well intended, has resulted in recurring, structural, tax revenue gaps.

- Shifting subsidy costs to households and businesses has adversely impacted Vermont private sector growth.

- The knee-jerk response of plugging these revenue gaps with increases of taxes, fees and surcharges is off the table.

- Spending on wasteful government programs, even favorite ones, has to be cut.

- A unilateral carbon tax would fan the flames of the present, downward-spiraling trend.

Solar/Battery System Operating Revenue: The main sources of revenues are: 1) regulation, 2) RNS and FCM charge reduction, and 3) solar sales, as below described.

 

1) Regulation: During regulation mode, its normal operation, the quick-responding battery system may be operated at 75% charged, so it can very quickly absorb or supply electricity from and to the grid, a service traditionally performed by less-quickly responding, small capacity, diesel and gas turbine generators, which release CO2.

 

GMP claimed it was credited about $100,000 for this service by ISO-NE, during the period of 1 January 2017 through June 2017. See URL, page 62. In this article, the credit is assumed at $200,000 for an entire year.

http://legislature.vermont.gov/assets/Documents/2018/WorkGroups/Hou...

 

Battery System Electricity Losses: The variable, daytime solar electricity (DC) is charged into the battery, then discharged, then converted from DC to a “smooth” AC acceptable to ISO-NE, then fed into the grid. That process has an electricity loss of about 15%.

 

At night, the batteries are charged from the grid to continue regulation mode. That process has an electricity loss of about 20%, because of the extra step of grid AC to DC conversion before charging the battery.

2) RNS and FCM Charge Reduction: The estimated 2017 ISO-NE charges for regional network services, RNS, and forward capacity market, FCM, for GMP are shown in table 5A. The RNS and FCM charges are due to increase in future years. See table 1 in URL.

http://www.sandia.gov/ess/publications/SAND2017-6164.pdf

 

Table 5A/2017			%
Vermont supply of electricity	GWh/y	6050	100
GMP supply	GWh/y	4598	76
Distribution loss	GWh/y	450.6	9.8
Billed electricity	GWh/y	4147
GMP sells electricity at	c/kWh	15.3
Revenues; per GMP	$million/y	634.6
GMP buys electricity at; per GMP	c/kWh	6.036
Cost of purchased electricity; per GMP	$million/y	250.7
Gross income	$million/y	383.9
RNS charge	$million/y	59.7	9.4
FCM charge	$million/y	57.9	9.1
Other costs	$million/y	196.2
Net income, estimated	$million/y	70.0

GMP discharges the battery system during the maximum peak hour of the year, as measured by ISO-NE, to reduce its demand on the NE grid by about 2 MW, and thereby reduce the ISO-NE-imposed Forward Capacity Market charges, a saving of about $200,000/y, similar savings as the Sterling, MA, facility. See table 6 and URL.

 

The battery system is similarly operated during the maximum peak hour of each month, as measured by ISO-NE, to reduce the ISO-NE-imposed Regional Network Services charges, a saving of about $200,000/y, similar savings as the Sterling, MA, facility. See table 6 and URL.

http://www.windtaskforce.org/profiles/blogs/solar-energy-does-not-r...

 

Table 6	Charge Reduction	Remark
Forward Capacity Market	$200,000/y	One peak hour/year
Regional Network Services	$200,000/y	One peak hour/month
Total	$400,000/y	Similar to Sterling

3) Sale of Solar Electricity: The variable, daytime solar electricity (DC) is charged into the battery, then discharged, then converted from DC to a “smooth” AC acceptable to ISO-NE, then fed into the grid. That process has an electricity loss of about 15%.

 

Production = 2.5 MW x 8766 h/y x 0.145 = 3,177,675 kWh/y

Battery loss @ 15% = 476,651 kWh/y

Net sales = 2,701,024 kWh/y

Cost of production @ 13.5 c/kWh = $428,986/y

Revenues @ 6 c/kWh (average midday wholesale) = $162,061/y

Revenues of REC sales @ 3 c/kWh = $81,031/y  

LOSS: ($428,986/y, generating cost) - ($162,061/y, sales revenue + $81,031/y, REC revenue) = $185,894/y. That loss is charged by GMP to ratepayers via the rate schedules, as are all other costs.

NOTE: I have assumed a CF = 0.145, a typical average for field-mounted solar systems, but GMP reported to the EIA 2,324,000 MWh for 2016, i.e., a CF = 0.106, which appears unusually low. Less production means less revenues. Surprisingly, GMP reported no data to the EIA for 2017. See URL.

https://www.eia.gov/electricity/data/browser/#/plant/60518?freq=M&a...

4) Summary of Operations: Table 7 shows a summary of the above three items. It is clear, the total gain is grossly inadequate for a $12.5 million project, demonstration or not. Such projects decrease the efficiency of the Vermont economy.

 

	Table 7/Annual net gain	$/y
1	Regulation	200,000
2	ISO-NE charge reduction	400,000
3	Loss on solar sales	185,894
	Net gain	414,106

Estimating the Annual Cost of the Battery System: This section shows an estimate of the cost of the battery system. GMP likely has a spreadsheet with such an analysis, which should be made public, but is not “for business secrecy reasons”. For my analysis, I assumed:

 

- The useful service life at a generous 15 years

- 75% of the system to be replaced in year 15

- The cost of the replacement is generously assumed to be 50% of the 2016 cost

- GMP, per statute, is entitled to earn 9+%/y on assets.

 

If replacement capital in year 15 is (5,345,000, battery system) - (0.75 *5,345,000/2, replacement) = $2,004,375 (no inflation), or $133,625/y, allocated to 15 years.

 

GMP earns 9%/y on the remaining capital, such as (5,345,000 - 133,625) x 0.09 = $469,024 for year 1, or $5,772,600 for 15 years

 

The cost per year is ($133,625, capital loss) + ($469,024, GMP 9% gain) = $602,649 for year 1, which would be slowly decreasing to $434,281 for year 15. See table 8.

 

NOTE: GMP owning Tesla Powerwalls 2.0s, heat pumps, solar systems, battery systems, wind turbines, etc., all adds to the asset base on which it earns 9+%/y. GMP is "green", and making money to boot, while all of us are paying more. The 9+%/y is independent of any benefits from subsidies, such as ITCs, rapid write offs, etc.

 

Table 8/Capital cost	5345000		Return, 9%/y	Total cost
Year	Capital used	Remaining cap	0.09
1	133625	5211375	469024	602649
2	133625	5077750	456998	590623
3	133625	4944125	444971	578596
4	133625	4810500	432945	566570
5	133625	4676875	420919	554544
6	133625	4543250	408893	542518
7	133625	4409625	396866	530491
8	133625	4276000	384840	518465
9	133625	4142375	372814	506439
10	133625	4008750	360788	494413
11	133625	3875125	348761	482386
12	133625	3741500	336735	470360
13	133625	3607875	324709	458334
14	133625	3474250	312683	446308
15	133625	3340625	300656	434281
Replacement	2004375		5772600

 

Various grants and subsidies for the battery system would reduce above numbers similar to wind and solar systems. The total reduction would be “socialized”, i.e., spread out over Vermont households and businesses, by means of taxes, fees, and surcharges, and higher electric rates, and higher prices for goods and services. There is no free lunch.

 

The annual net gain in table 7 usually is presented as a press release to the uninformed public, legislators, etc. However, it is abundantly clear, the total of the annual battery costs would completely eliminate the gain in table 7. See below notes.

 

NOTE: Here is an example of a major cost. Amortizing the $5,345,000 battery system turnkey cost, less ITCs of $1,246,734 = $4,098,266 at 5%/y would require annual payments of $509,200 for each of 15 years, which gives another indication of costs not mentioned.