Cheap Renewable Energy is Here. Why Doesn’t The Grid Plan For It?

August 20, 2015
Mike Jacobs
Senior Energy Analyst

Wind farms and solar arrays are setting new records for low energy prices, with wind under 2 ½ cents and solar under 4 cents when conditions are right. These are cheap prices, given electricity from new natural gas plants is in the 5-7 cents range, coal at 6-10 cents, and nuclear somewhere between 13 and 15 cents, according to one fleet owner (nuclear can be unpredictable). So why aren’t more electric grid operators incorporating this energy as they plan to meet grid needs?

Wind blowing on summer  morning across wide areas of central and eastern US. Credit:

Wind blowing on summer morning across wide areas of central and eastern US. Credit:

Wind and solar are cheap

Wind energy is getting cheaper because new wind turbines make more energy during more hours with taller towers and longer blades. Solar has become MUCH cheaper because the growing size of the market allows more efficient manufacturing of solar panels. Both of these trends mean more energy is produced from wind and solar. Wind tends to be more productive in winter and night time, while solar, unsurprisingly, is more abundant in summer and day time. As these can be complimentary, renewables are a solid contributor to needs, when viewed together.

Wind and solar are helping

Even though most engineering analyses look at wind and solar separately, there is still a significant contribution to meeting grid needs from each. PJM, serving the power system in 13 states, released a study with industry leader General Electric that showed how wind and solar contribute to times of greatest need. That report gave the portion of a wind generator contributing to PJM meeting demand at 15% and a narrow range for solar around 60% of each installation. The wind value will go up with the larger turbines deployed after 2012 (when the study began).

The higher production for new wind farms, which is measured as an annual capacity factor, will improve wind’s contribution to meeting demand. We are beginning to see windfarms with an annual capacity factor over 50% appear in the 2014 dataset used by LBNL in the Wind Technology Report. The U.S. Department of Energy Wind Program provides an interactive map to see how each state can build windfarms with existing and new wind turbine designs. For example, this shows Indiana and Ohio each have 5 million acres of windy land capable of windfarms with capacity factors of 50% and 45%  using today’s technology. “Near-future” turbine designs with 140 meter hub heights are expected to offer capacity factors over 50% in Ohio, and over 60% in Indiana and Illinois, when the average has been 35-40%.

So what do grid rules expect from renewables?

How does grid operator PJM treat wind and solar when it estimates how much power the grid will need, and where it will come from? Mostly, they don’t count it. And the new rules taking effect this week mean they will count even less.

Here’s how we pay for fossil-fueled power plants

To secure a priority place on the grid as a “capacity” resource, power plant owners contract with the PJM for the capacity to meet total demand. In exchange for $7.5 billion per year, the fleet of generators commit to be available to run. This means that on days when demand is hardest to satisfy, everyone is assured an adequate supply will be available. PJM includes some probabilities regarding power plant outages and severe weather in this calculation, but they do not include the probability that solar energy may be available in summer, or wind energy in winter. With the growth in renewables, this could be an important omission.

Not entirely discriminating against wind and solar

The PJM process allows for solar and wind to enter the contractual commitments, share in the payments, and bear the risks on non-performance, which PJM has sharply raised going forward this week. The economic logic used by PJM is that a year-round commitment is required from other types of generators, and wind or solar owners can partner with each other, or any other supply, if that makes them better able to take the risk of the new year-round performance requirement.

But you might not like how this is done

If the owner of a wind farm or solar array does not enter into PJM’s capacity contract, they can still make and sell energy, and generally work to meet their other obligations and objectives. And the majority of wind and solar generation in PJM is already in this category. When the wind blows heavy in winter, or the solar is producing in summer, their contribution to meeting demand are welcome, but they are not included in the plans.

So, this is bad

Maybe consumers are going to pay hundreds of millions of dollars more each year under the new PJM rules and with the omission of renewable energy contributions. As PJM sets the size of its procurement, and holds auctions to purchase capacity commitments, it does not recognize the contributions from wind and solar that have not entered the capacity market.  Debating the exact number depends on slopes of supply curves and auction results, as well as the growth of solar in the next few years. That debate should begin now.

And it gets worse

The stakes are higher with PJM’s new capacity rules—PJM estimated the auction results would be $2 billion higher than past years. Also, developers of wind and solar are queuing up to build in PJM states to meet policy goals, on the scale of 10x increase in solar, and 2x increase in wind.