Lessons in Regulatory Hubris
What the Solar Rooftop Standard has to tell us about our climate policies.
If you follow this blog, you are probably already aware that last Wednesday, the California Energy Commission, the state agency responsible for adopting energy-efficiency related building standards, added a new standard: starting in 2020 almost all new homes in California must install rooftop solar.
While I have already published an op-ed criticizing the move, I’m going to look on the bright side here. You see, this regulation provides what we in the University biz call a teaching moment. Many of us here have been working on climate and energy policy for a long time and realize that some core problems with regulatory approaches keep cropping up in policy after policy. Let’s call them the symptoms of regulatory groupthink.
So rather than picking exclusively on the new solar standard, we can use it as a case study to help illustrate a broader set of problems with many of our approaches to energy policy. As our climate goals get more ambitious, the stakes are getting much higher and we may not be able to continue to ignore these flaws. We are going to need to treat these symptoms or our climate policy could ride off the rails.
Symptom Number 1: If we like a technology, we mandate it! If we don’t like a technology, we ban it!
One thing the press coverage of the standard seems to overlook is that there are lots of other policy options for promoting low-carbon energy and that we don’t necessarily have to do all of them. There are many pathways to zero-carbon electricity, and many of them don’t require solar PV on all houses. Standards, such as this new mandate from the CEC, are the strongest, and most extreme, tool in the toolkit of energy and environmental regulators. In general a regulatory standard eliminates choice and assumes that the mandated solution is the best one for everyone, everywhere, no matter what their circumstances. Contrary to the stereotype of economists, most believe that regulatory standards have a role to play, but as a kind of last resort. A rule of thumb should be, if everyone were fully informed and faced the right incentives (including the costs of their pollution), they would choose this option. Insulation in a new home meets that description.
In other words, standards should be limited to cases where they mandate an obvious, slam-dunk best option for solving a problem. This is where rooftop solar runs into trouble. In the case of rooftop solar, it should be not just the obvious best choice right now, but for much of the lifetime of a new home. That’s a tough criterion to meet. Consider what you thought to be the slam-dunk best technology 30 years ago.
My colleagues and I who have been critical of the CEC standard in the press have pointed to the fact that electricity from solar on residential rooftops is on average way more expensive than solar in other settings (warehouses, solar farms). I’ve gotten feedback from various commenters, friendly and not-so friendly, making arguments that point to the costs of high-voltage transmission, or concerns over large installations in sensitive desert eco-systems. Such factors should definitely be taken into consideration, and while they may narrow the gap between residential solar and other options, many believe they still don’t outweigh huge cost advantages enjoyed by large-scale installations.
But even having this debate misses a more important point. The burden of proof isn’t on me to show that there are better options for low-carbon energy than residential solar. I’m not the one requiring almost every new home install a nearly $10,000 technology. The burden of proof is on those pushing for a mandate that ignores any concept of a level playing field between possible solutions to show that their technology option is obviously the best choice amongst many others, not just now but also over the coming decades. I don’t think the CEC has come close to meeting that burden.
Symptom Number 2: We continue to treat infrastructure cost-shifts as savings.
This has been a recurring theme on the blog over the years. As Severin Borenstein has pointed out, one of the main reasons residential solar in California looks like a good deal, from the perspective of many households, is because its costs are compared to full retail rates. The problem with this comparison is that retail rates contain a large amount of fixed and sunk infrastructure costs. Those costs don’t go away when a home generates solar energy. Solar homes shift those costs onto non-solar homes.
Consider this situation: we spend $5 Billion to build a bridge across the Bay, and charge commuters $10 per round trip to pay for it. It’s a good public policy decision because each commuter gains $20 in personal value from using the bridge. Right after the bridge is finished, the transportation commission determines that all commuters could own jet skis, and ski across the Bay at a cost of $8 a day. Two dollars less than having to pay the bridge toll! A win-win! It’s clear that for the best interest of those commuters, we should mandate they all buy jet skis. Except that those billions of dollars in jet skis won’t save us the cost of the bridge. Public policy evaluation needs to look at the full social costs of policies, and not treat cost shifts as free money.
Symptom Number 3: The infatuation with “net-zero <something bad>”.
The CEC solar decision is another step in the push for a net-zero energy standard for new homes. The solar mandate has been justified as one way to get the state closer, but still not all the way, to that goal. Rather than make the solar standard look better, this decision should draw more scrutiny upon the net-zero energy aspiration. This building standard target hasn’t received nearly enough attention or scrutiny, possibly because it hasn’t been taken seriously up till now. It’s a great example of the net-zero everything movement. Economists, or anyone who has spent any time thinking about comparative advantage, have long shaken their heads in disbelief at this stuff. Apparently we haven’t articulated the counter-argument clearly enough. Sure, net-zero energy for every new home could be a way to reach our climate goal but it’s almost certainly not the best way. Requiring each California resident to sell enough goods and services to China to offset the imported goods they consume would be a way to address our trade imbalance, but not the right way.
Or think of it this way, why not have net-zero energy standard for each room in a house? That would be crazy, you say? What if the roof above one room isn’t facing south and another is? Well, what if one house has a roof amenable to large amounts of solar and another is a north-facing home with an odd-shaped roof shaded by trees?
Maybe, maybe, net-zero goals have a role as a gimmick for spurring ideas in a demonstration project setting. When we start taking them too literally and applying things like this to every home, we’ve gone too far.
Symptom Number 4: Our renewable energy policies do not adequately account for the energy or capacity value of the resources we acquire.
In much of our policy a green kWh is considered better than a dirty kWh, but not all kWhs are the same. For example, California has been at the forefront of rapidly shifting its electricity production to renewable generation technologies. Utility-scale renewables have been driven by the renewable portfolio standard (RPS). Distributed renewable generation has enjoyed a raft of implicit and explicit subsidies, including net-metering and an extreme rate structure, which together make rooftop solar an attractive option for many California households. What all of these policies share is a complete indifference, incentive wise, to where and when the energy is produced.
Under the RPS everyone has had an incentive to install the technology that produces the most renewable KWh regardless of when they are produced, and, in California, that has turned out to be solar. Recent work by myself and Kevin Novan, also of UC Davis, quantified the impact of the solar binge in California on the wholesale prices of power. In the last 5 years, thanks to the surge of wholesale solar energy (right panel) the price profile has moved from the blue (solid) line above to the red (dashed) line (left panel). What this means is all the solar we have already installed has driven down the value of midday energy. The next KW of solar capacity we install will be far less valuable than the first. The 10,000th MW of solar capacity we install will generate only about half of the value that the 2000th MW did. But the RPS doesn’t care, it just wants its KWh.
The new CEC rooftop solar mandate kind of cares, but in bizarre ways. The CEC uses something called the Time Dependent Valuation methodology, a forecast of the time value of energy and other infrastructure over the coming decades (good luck with that). Who knows, maybe the CEC’s consultants are exactly right and this is what the hourly marginal cost profile will look like, but it sure looks different than what I would have come up with. Maybe reasonable people can disagree on this. This brings us back to point number 1, if reasonable people can disagree, then we shouldn’t be requiring almost everyone to install a technology justified by this one set of debatable assumptions.
As more aggressive and difficult carbon reduction goals loom for California, there seems to be an inclination to grasp at every policy we can think of that can add to the carbon reduction body count. It’s a spaghetti on the wall approach to carbon policy. However, it’s now more important than ever to focus on the efficient tools and policies that can push our carbon reductions in cost-effective ways. We could get away with inefficient policies like net-energy metering and zero-carbon schools when they were relatively small polices. From here on out the costs are going to start to matter.
Suggested citation: Bushnell, James. “Lessons in Regulatory Hubris.” Energy Institute Blog, UC Berkeley, May 14, 2018, https://energyathaas.wordpress.com/2018/05/14/lessons-in-regulatory-hubris/
Good analysis, good points. The GHG hysteria is where it is because we’ve past many GW tipping points. Basically, we’re out of time for this and our only option is to slow the warming in the hope of a miracle or two.
Mandatory standards were a strategy better suited to 1968 when Hansen testified before congress. The DoD regards GW as the #1 threat to national security. Others, who have spent a lifetime studying these issues view GW as the #1 threat to human existence, at least in any form recognizable to us today.
So what to do? Go net zero in any way possible. Regard GW as the #1 threat to YOUR security and the security of your progeny. Live as if you understand this in your heart, not just your head. When it comes to costs, understand what it will cost the world’s economy if we fail? It’s not entirely about what we do, it’s about how fast we can get it in place. And no other state is like CA. What will it cost our kids? What is our collective moral and ethical responsibility to come to our senses on this?
There will be no perfect solution to a FUBAR situation. Get to work! When your own life achieves net-zero status then come back and share what you’ve done. In the mean time, talk is cheap and meaningless in a crisis.
There are a significant number of errors in your post:
1) The “Tipping points” were theoretical concepts – we don’t actually know what the tipping point is, or when it might occur. Many tipping points have come and gone without a profound transformation of our climate. There might be one in our future, but frankly we don’t know for sure, and such an occurrence would only be obvious in retrospect.
2) We (the U.S. or California) are not the problem – we don’t control the world supply of hydrocarbons, nor do we control the world demand for hydrocarbons. Ergo, our actions will likely have limited effect one way or another. The only truly practical solution is to create energy sources that are cheaper than coal at a retail price. That is about $0.03/kwh. Wind and solar come no where near this standard. Geothermal and hydro meet this standard. Natural gas might, as well as nuclear. But which of these solutions do we promote? The ones that almost assuredly will never solve the problem. Had California invested as much money in nuclear power as it did in wind and solar, it would be 100% carbon free, today. So I might make the same argument – had ecowarriors not demonized nuclear power in the 1970s and 1980s, we would not have any climate issue at all. But you ignored the experts, and now whine about being ignored.
3) “Mandatory standards were a strategy better suited to 1968 when Hansen testified before congress.” 1968? I think you mean 1988.
4) “The DoD regards GW as the #1 threat to national security.” Highly unlikely.
5) “Others, who have spent a lifetime studying these issues view GW as the #1 threat to human existence, at least in any form recognizable to us today.” Again, highly unlikely. It might be in the top 20, but is no where close to number one.
6) “Go net zero in any way possible.” well, that is the problem isn’t it? We are not approaching the problem “in any way possible” We are approaching it “not this way, but that way.” The only countries that have successfully decarbonized to a large degree have deployed nuclear (France), hydro (France, Ontario, Norway, and Iceland), and geothermal (Iceland) power. France decarbonized their entire electrical sector in 10 years using hydro and nuclear. We know this solution works, at a cost we can manage. Instead we have opted for wind and solar, which both appear unlikely to achieve the goal – we are counting on future inventions to make them work. if this indeed a crises, then might I propose we start acting like it?
I agree – what is the moral responsibility here? I’m frankly tired of the sing-song about a crises by people who don’t act like it is a crises at all. Forget nuclear – There is around 2 GW of geothermal power in the ground at the Salton sea that could be developed at a low marginal cost, and will supply carbon free energy (and lithium for batteries) for a century. When is the last time an environmental group protested to allow development? Has the state of California lifted a finger to speed development? If not, why not? We’ve known about this resource for 50 years. The land has marginal ecological value. But we insist that the companies trying to develop the resource jump through hoops….and we cost it out of the market.
“. The only truly practical solution is to create energy sources that are cheaper than coal at a retail price. That is about $0.03/kwh.”
Where do you get this number? Lazard’s Cost of Generation shows $60 to $146 per MWH and that largely excludes the external cost of GHG emissions. Meanwhile the same reports solar technologies costing $43 to $53 per MWH. Certainly you can then get into why actual costs diverge from these values, but that occurs on both sides of the ledger. Most of the coal fleet in the developed world is aging, nearing the end of its economic life, so its new plant prices that matter. And right now renewables are displacing fossil resources solely on an economic basis.
As for nuclear, the new South Carolina and Georgia plants were supposed to show us how nuclear could be constructed cost-effectively. Instead, it turned out to just be the same old story, again. Nuclear is not a cost-effective resource, and only fantasizing about what could have been in an alternative future makes it so. It’s time to move on with what we have at hand.
Again, every single point is missed.
Read point 2 again carefully. The U.S. doesn’t matter. The number of coal plants in the U.S.? Doesn’t matter – Since 2000, the world has doubled its coal-fired power capacity to 2,000 gigawatts (GW). Another 200 GW is being built and 450GW is planned. None of that is in the U.S. Our total capacity at the moment is 278 GW and declining. China alone has almost 1,000 GW. China alone is planning to add more coal power than the entire U.S. uses. If we eliminated coal in the U.S. tomorrow as an energy source it would make no difference at all to world carbon dioxide emissions.
So it doesn’t matter what the cost of coal and solar is in the U.S., it matters what the cost of coal and solar are in India and China. And that is $0.03 to $0.05/kwh wholesale, fully dispatchable. If solar or wind were cheaper, they’d be building that.
Look at the images of the poor in Africa, in India, in Bangladesh, and explain to me how we are going to electrify their homes with $8-10k solar power systems. It’s preposterous. They will be first electrified by local diesel and or coal fired power plants – very inefficient ones. This will happen because instead of buying the solar panels from us (which they can’t afford), or making them (which if they can, but they would just sell them to us), they will mine and burn local coal.
Your focus is all about America, and we don’t matter. We emit more per person, but China and India are a lot more persons. And they are increasing their emissions per capita, rapidly.
The only thing that CAN make a difference is energy sources cheaper and better than coal. The only way to get solar and wind to that price is to let them compete without subsidies – along with everything else.
We can tax carbon all we want in our country – but they won’t, so it won’t matter. If anything it will reduce our demand for oil and gas, which will reduce prices, making it even cheaper for them to buy. We can put solar roofs on every home in the U.S. – won’t matter, because they won’t do it too.
And again, where do you get the number “$0.03/kWh”? You don’t cite to a source. And you’re wrong that eliminating coal in the US doesn’t matter–we are still the No. 2 global emitter. (And as for “cheaper” coal in India, that again is because it is is subsidized to maintain the jobs of low-Btu coal miners.)
Solar is cheaper in those same countries for the same reasons. We see bids of $20/MWH in Mexico. And in Africa and Asia, they won’t be building 3-6 kW solar arrays to serve a house, because their loads are much smaller. Those places have the opportunity to avoid T&D lines and gain local energy independence. The government can save their exorbitant petroleum subsidies in those places by installing neighborhood solar panels. And this mode of electrification is happening there now.
And you still didn’t answer my point about nuclear costs. I see that even more plants are being cancelled internationally due to skyrocketing costs. The French achieved low costs by subsidizing their plants with military spending. So subsidies are flowing everywhere. The growing project risk of nuclear is ensuring that it won’t be the large scale solution without very radical changes in the technology and the industry.
Talk about persistently missing the point. Where do I get $0.03/kwh? Well about 1/3 to 1/2 of any electrical bill is the wholesale cost to generate. The average price people in the U.S. pay for electricity is about 12 cents per kilowatt-hour. Meaning, at a minimum, wholesale costs are between $0.04/kwh and $0.06/kwh. But that is in a relatively rich country. Poor countries will pay less.
As you can see on this chart, China and India pay $0.08/kwh retail. That means they must be paying between $0.04 and $0.02 wholesale. $0.03 is between those two numbers. None of this is especially hard to figure out or look up for yourself. There are literally thousands of websites that can tell you the same thing. I didn’t feel like I had to provide a special reference for a well known fact.
“And you’re wrong that eliminating coal in the US doesn’t matter–we are still the No. 2 global emitter.” shessh. It’s not that you are just wrong, you think you understand stuff that you absolutely do not. The sign of an ardent environmentalist.
The U.S. is the number 2 emitter of carbon dioxide – but the ranking is misleading. We emit HALF of what China does. And as our emissions are declining, theirs are rising. And naturally India emits half of what we do, but plans on emitting much, much, more. But I was specifically talking about COAL. That is why I specified “eliminating COAL”. China emits more carbon dioxide from COAL than all advanced economies COMBINED.
So ELIMINATING COAL in the U.S., while a laudable goal, and something we are well on our way to doing, does not begin to address the actual problem. We have already reduced emissions from COAL 38% since 2007. It will likely keep declining.
The point is that these hard won declines in the U.S. are being swamped by increasing emissions elsewhere. We either have to reduce a lot more, even faster, which is probably not possible, and won’t solve the problem, or find a way to wean India and China off coal. If we owned all the coal in China and India we could refuse to sell them any. Unfortunately, they have their own supply, serving their own insatiable demand. And we can’t afford to pay them not to use it. We could nuke them from orbit, but that would inhumane.
Nope, seems like the only possible solution is to invent technology that is cheaper than about $0.03/kwh wholesale electricity. If it is cheaper, then they will use that instead. And that isn’t solar and wind. The problem is storage. While solar can get pretty cheap (may around $0.02/kwh wholesale), we have to pack solar PLUS energy storage into the tiny little $0.03/kwh. And that is just not going to happen. And wind is likely already as cheap as it can get (seriously, don’t make me do all your homework for you.). So that leaves us with several ugly choices. The climate disaster will continue apace until people like yourself grow up and make them.
The rest of your post is more environmental nonsense posing as “facts”. None of which matter, and all of which ignore reality.
“Solar is cheaper in those same countries for the same reasons.” Nope.
“We see bids of $20/MWH in Mexico.” So? $0.02/kwh? During the day. No storage. Without that it is apples and orangutans.
“And in Africa and Asia, they won’t be building 3-6 kW solar arrays to serve a house, because their loads are much smaller.” For now genius. Or do you assume they like being poor?
“Those places have the opportunity to avoid T&D lines and gain local energy independence.” Ah, India, where I met local people demanding “real” power and not part-time solar panel power. And China where they are all about regions being independent of central authority.
“The government can save their exorbitant petroleum subsidies in those places by installing neighborhood solar panels.” But they aren’t and won’t and you can’t make them. Oh they say they will – then build 200 coal plants because rural electrification is pointless – they want industry and jobs, jobs, jobs.
“And you still didn’t answer my point about nuclear costs.” I didn’t because it is exhausting spoon feeding you.
“I see that even more plants are being cancelled internationally due to skyrocketing costs.” Hmmmm. Why are costs skyrocketing I wonder? I mean, most technologies get cheaper as they age, because they get better. Solar and wind are improving, while nuclear is getting more expensive. Did the physics change? Did we run out of uranium, concrete, and steel? You know a smart person would notice something odd about that and investigate…
“The French achieved low costs by subsidizing their plants with military spending.” Not sure where you pulled that fable from…
“So subsidies are flowing everywhere.” hey. an actual nugget of truth.
“The growing project risk of nuclear is ensuring that it won’t be the large scale solution without very radical changes in the technology and the industry.” You are on the cusp of a realization…..
So you concede that solar and wind are now less than your target of 3 cents per kWh (and your standard ignores the subsidies that many developing nations role into their energy prices). But you ignore that the prices that are being published for U.S. and developed world deals–India and China are seeing costs even one-half of these sub $30/MWH PPAs. That means there’s much more headroom than you are accounting for.
Again, homes in developing countries will not need solar arrays of 3-6 kW. They may not like being poor, but the reality is that they will not have full house central AC in 2,000 sf houses with two refrigerators for decades, if ever. We are not trying to build a power system for the next century with today’s technology.
Which brings us to storage where prices are plummeting, in part due to the increasing push for EVs in places like China (which aiming to be the world leader according to a “60 Minutes” story aired a few months ago.) And when EVs become ubiquitous, storage for building use becomes virtually free because the on-board EV storage that accrues 100% of its value from transportation provides stationary storage for almost free (the only cost being accelerated depreciated which is minor).
If you are unaware of the French using defense funds to subsidize their nuclear power industry then you are not well informed about the industry. This has been well known for decades.
And you still haven’t addressed the issue of rising and exorbitant nuclear power costs, which you tout as your solution. You criticize us for putting forward renewable costs which don’t meet your cost effectiveness standards, but you refuse to support your own proposals. What do you believe is happening to cause rising nuclear costs? I don’t have to look far–initially the engineers failed to account for all of the impacts, risks and costs of overly complex systems, and they keep finding even more problems. You assert we should recognize reality, yet you choose to turn a blind eye to the reality of the nuclear industry’s runaway costs. If you think posting on a blog will solve that industry’s problems, then you are being truly naive. You need to become directly involved in the building processes that you think are broken. There are unlikely to be any radical changes in that technology and industry. I have no realization coming on this, and its not worth wasting our time on an industry that has made broken promises about its technology for more than seven decades now. Why would we expect them to suddenly change?
“So you concede that solar and wind are now less than your target of 3 cents per kWh (and your standard ignores the subsidies that many developing nations role into their energy prices).” I said that doesn’t matter because it is Solar Plus storage. And I never mentioned wind – you literally made that up.
“But you ignore that the prices that are being published for U.S. and developed world deals–India and China are seeing costs even one-half of these sub $30/MWH PPAs. That means there’s much more headroom than you are accounting for.” Nope – lazy thinking on your part. These are DEALs. You might want to look past the headlines as to what these low prices actually require as part of the DEAL. I could sell you a new car for $1, but in the fine print of the DEAL I might require the deed to your house.
I negotiated an agreement with a wind power company that offered very competitive prices for their energy. Problem was they wanted us to guarantee purchase of their energy, whether we needed it or not, meaning we had additional load following issues that increased our costs enormously. Oh, and they also wanted us to pay them a large fixed amount every month no matter how much energy they provided – even if that number was zero. The utility and our customers took all the risk. Naturally we ran the numbers and realized the “cheap” wind would increase our costs by 20%, AND increase our emissions due to load following. So we said no. The wind farm then proceeded to pressure us to sign their terrible deal by advertising exactly what you have – how very cheap the “deal” they were offering us was. Thousands of nasty letter pored in – clueless green shills from across the nation trying to force us to allow a massive corporation to fleece our customers in the name of protecting the environment. Good times. Somehow we managed to stand firm. But every year or two they come back again, a billion dollar corporation with a massive ad campaign trying to force us to screw our customers and the environment so they can get rich.
Most utilizes would just give in. I mean as long a FERC allows it, just pass the cost on to the consumers and avoid the headache. Heck just look at the correlation between wind and solar market penetration and actual rates. But our utility is a co-op, so the owners are the customers. When Greens say “everyone is subsidized” it is a tacit acknowledgement that this is the case – they are justifying screwing people over. Unfortunately, they don’t realize the corporations proposing these projects are lying to them as well. heck, Warren Buffet, a big wind energy owner said these projects would make zero sense without the production tax credit. And he’s is 100% right – just run the numbers.
“Again, homes in developing countries will not need solar arrays of 3-6 kW.” So in your horribly racist and western point of view, poor yellow, brown, and black people will never want or need as much energy as we take for granted? How ya going to get them to stay on the farm once they have seen New Delhi?
“They may not like being poor, but the reality is that they will not have full house central AC in 2,000 sf houses with two refrigerators for decades, if ever. We are not trying to build a power system for the next century with today’s technology.” Dear lord that is the most racist and clueless thing I can imagine. Now you are projecting yourself, your wants and needs, into them, and pretending that is what they want. Hey, ever think to ASK them what they want? Ask any poor villager if he wants a 2000 sf home with central AC. Besides my racist and clueless friend, they don’t need what we have now, because there are so very many more of them, having only a fraction of what we have now is going to break the bank.
“Which brings us to storage where prices are plummeting, in part due to the increasing push for EVs in places like China. And when EVs become ubiquitous, storage for building use becomes virtually free because the on-board EV storage that accrues 100% of its value from transportation provides stationary storage for almost free.” Er, yeah. So many problems with that. Overall you don’t understand HOW power or utilities work. But that is a big subject. Let’s go small – So at night, when my car is supposed to be getting charged, the utility is going to pull power from it to balance load? Or would they do that during the day when I’m driving it around town? Tell me, how much is the utility going to pay me to provide this valuable service? Nothing? I think that is going to be hard pass for most people who aren’t idiots.
“If you are unaware of the French using defense funds to subsidize their nuclear power industry then you are not well informed about the industry. This has been well known for decades.” Well, it has been discussed for decades by 2nd tier college faculty members between bong hits, if that is what you mean. Otherwise, so? Literally, so what? Money is fungible, and you haven’t made a cogent point.
Had California and Germany invested $680 billion into new nuclear power plants instead of renewables like solar and wind farms, the two would already be generating 100% or more of their electricity from carbon-free energy sources. That includes all transportation by the way. They are pursuing the most expensive, least likely to work, and slowest possible strategy to deal with climate change. Because it’s a “crises” doncha know.
“And you still haven’t addressed the issue of rising and exorbitant nuclear power costs, which you tout as your solution.” And you still haven’t answered the question – why is a 60 year old technology using well understood principals of physics costing MORE over time, instead of getting cheaper like everything else? Your obvious lack of curiosity is telling. Should I explain it? You won’t GET it. But perhaps someone else reading can be enlightened.
Nuclear power is dirt cheap to generate once the plant is built. Even doubling or tripling the cost of uranium has no effect on costs. So rising costs are not a function of anything happening after construction. When a power plant is built, a loan is taken out for construction. Usually the loan is in the form of bonds. The bonds are paid back with interest from the sale of electricity. When a plant is built, the bonds are sold, the money accumulated, and the plant constructed. Sale of electricity over the next 30 years pays back the bonds with interest. Probably 1/3 of the total cost of the nuclear plant will be interest on the bonds, so this is a very big part of the total cost.
Greens have become very adept as disrupting this process. Construction cannot start till the bonds are sold. The bonds are sensitive to interest rates. Interest rates are based on risk – what is the risk the plant won’t sell the electricity to pay back the bonds? What is the likelihood of a default? So greens protest, making the plant look scary. they also file lawsuits designed to delay the plant construction – the loan is taken out at the beginning of construction, and interest accrues from that start date. If the project gets delayed one year, that is hundreds of millions of additional interest that must be paid. Longer construction times = more time you are paying out money without compensating by selling electricity.
Plants were designed as baseload – running 24/7 and selling every single kw of power. in fact that is the perfect way to run these units. along comes RPS saying solar and wind get a preference in the market. So when wind is over generating, the nuclear power plant must ramp down to load follow, which is very hard because it wasn’t designed to do that. Also if the nuke plant and solar are both providing power, in many cases, by law, the utility must own take the solar power first because nuclear is not renewable (RPS standards). Meaning sales of electricity decline for the nuke plant, destroying their ability to pay back the bonds plus interest. WHICH increases the risk for the next nuclear plant, increasing costs significantly.
“You criticize us for putting forward renewable costs which don’t meet your cost effectiveness standards, but you refuse to support your own proposals.” utter nonsense. I’ve wasted countless hours trying to educate you, to little effect.
“What do you believe is happening to cause rising nuclear costs? I don’t have to look far–initially the engineers failed to account for all of the impacts, risks and costs of overly complex systems, and they keep finding even more problems.” ha ah. Made up green propaganda. The problems don’t often seem to manifest themselves into, you know, actual problems. Just concerns. San Onofre was closed because of vibration in the steam plant generator, which had nothing to do with the nuclear power portion of the project. Killed the project. Oh hey, how we going to pay off the bonds, now that SONGS is no longer generating? Guess we’ll just raise rates. But surely that wouldn’t impact the interest rates for the next power plant, would it?
“You assert we should recognize reality, yet you choose to turn a blind eye to the reality of the nuclear industry’s runaway costs.” Nope. Unlike you, I know exactly what is causing the nuclear costs to increase, because, unlike you, I actually bothered to look into what was happening, and what specific costs were increasing. Don’t project your laziness on me. And, hey. I don’t like nuclear either. I wish there was a better option. I don’t see one. That comes from being actually and honestly concerned about the environment, instead of faking it.
“You need to become directly involved in the building processes that you think are broken.” Okay – I’d like to re-open the Mountain pass mine in California. Rare earth elements are critical to renewable power. I think the state should buy the land, and assume all environmental liability, and promise to work closely with any mining company that agrees to get involved to a make sure they can mine profitably. And we should fast track this going forward. This will help the world, and California, become a leader in renewable power. Any takers? I mean, this is a few million bucks at best. Chump change.
Hey, we have a problem with nuclear waste and we have the best universities in the country. I propose we build experimental molten salt reactors at the defunct nuclear power plants in California to burn up the remaining waste. Since these reactors are immune to melt down, they would be 100% safe. And we would unlock this valuable technology for use around the world to generate safe, clean energy for thousands of years and dispose of the waste. And the state could be the bank – basically promise the money for construction without interest, so projects delays have no cost.
Who’s with me?
I think California should push forward on development of the Salton sea geothermal resource. For a few million $ they could drill a large series of test wells to locate the best resources, significantly reducing project risk and spurring development. They could also designate a preferred and approved corridor for transmission of the power to the rest of the state. Oh, and how about amending the RPS standards to include all carbon free energy to level up the playing field?
There are lots of outside the wind and solar box ideas that will get us to 100% clean power faster and cheaper. But all of them require that greens agree to slightly modify their maximalist demands, which will never happen.
“And you still haven’t answered the question – why is a 60 year old technology using well understood principals of physics costing MORE over time, instead of getting cheaper like everything else?” It’s not my burden to do your work.I seem the unfilled promises from the industry for decades.The rest of us are done You claim later that you have explored the reasons but you still don’t provide them. You try to claim that the nuclear plants are working with 30 year old technology, but the plants being cancelled are new. Why aren’t they using current technology? Of course they are using the latest technology.
You criticize me for proposing a solution that hasn’t yet been implemented, and then you propose a complex as yet to be fully developed technology as your solution. Many are working on the solution I proposed–I didn’t invent it. There’s still no breakthroughs in nuclear power research. As I’ve pointed out, the nuclear industry needs to show that it can build a plant cost effectively. It has failed over and over again. Why should we believe them now? I am waiting for you to provide the information that would actually educate us on these matters. All you’ve done is assert that you are correct with no support.
And you’re clearly unfamiliar with the issues in the Salton Sea geothermal fields. Read our work in the CEC Cost of Generation report to see some of those issues.
And your accusation of racism is fully unjustified. The fact is that Europeans also won’t be living in 2000 sf houses. If you somehow believe that in the future that all of us are entitled to make the same poor resource decisions as we and our ancestors have, then we deeply disagree. You claim that we should be acting in all haste as your justification for spending on outrageous technologies and destroying other environmental elements, but then you argue that we shouldn’t impinge on consumer choices because that is “racist.” Your contradictions are manifest.
Not to beat a dead horse, but it occurs to me that you have perfectly illustrated two Green talking points that are used to win many an argument. The first goes like this:
“Your technology is old and busted. My technology is much better once all the improvements planned over the next 30 years happen.”
You are comparing past, or at best, current technology with future technology. Saying nuclear power plants, constructed 30 years ago, are not safe, or too expensive, while solar plus batteries, 30 years from now, will be much cheaper and better. You are giving yourself an unfair advantage in the argument, and taking for granted that your favored technology will be better, while all other competing technologies will stay exactly the same.
Could we build a new nuclear plant today that is safer, better, and cheaper than those built 30 or 50 years ago? Of course we could. And 30 years from now they will be even better. For example, right now we are working on supercritical carbon dioxide generators that could increase efficiency of any thermal power plant 10% at marginal cost. So, thermal plants are poised to get 10% cheaper. And this technology could be applied retroactively, so even older plants could be outfitted with new generators. This means a quick 10% drop in emissions at reduced operating costs.
You factoring that in anywhere? I mean, shouldn’t that future improvement count against future improvements in solar panels and wind?
The second talking point is not thinking things through:
“Which brings us to storage where prices are plummeting”
Well, why are they plummeting? What is the enabling technology that is causing the price reduction? Is it technology, or manufacturing volume? What are the limits to the decrease in prices? Certainly there are physical limits to how much energy can be stored per kg of lithium. How close are we to those limits? Could we run out of lithium, chromium, etc? What is our best possible deployment rate? See, you haven’t a clue. In fact these questions never occur to you. You just project out a line to infinity, and count your winnings.
“And when EVs become ubiquitous, storage for building use becomes virtually free because the on-board EV storage that accrues 100% of its value from transportation provides stationary storage for almost free (the only cost being accelerated depreciated which is minor).”
See, this argument sounds interesting but it actually means nothing. It consists entirely vacuous green mumblings and wishful thinking. If EVs are popular, and when they reach some sort of critical mass, and if the owners agree to allow them to be used by utilities for free, and if there are enough to make any difference, and once sufficient turnover has happened, and if Musk’s vision for a lot less cars in our future doesn’t come to pass, but his vision of an EV future does, and some sort of competing technology doesn’t happen, then you get to be right.
Why even bother making such a silly argument? What point does it serve? It doesn’t inform us today about what we are going to do next. It is just one possible solution out of thousands. If you have a hard and costly decision to make, holding out hope that in the future that decision will not be costly or hard paralyzes action today. You won’t make the hard call, because someone is promising that eventually you won’t HAVE to make it. I keep calling you lazy and unserious for exactly this reason – you are wishing a future that may never happen, for technology that might not work out. And you are doing that precisely as you are insisting we have a hard timeline for action where we MUST act.
I am going to retire. I haven’t saved any money, because saving money is hard. If I start saving today, in 30 years I’ll have enough money to retire, but it is important to start saving NOW. Someone comes along and tells me, don’t worry, you don’t have to save a thing, just wait for that rich Aunt of yours to die. Surely she will leave you enough for retirement. I say, yeah, why am I suffering now, when there is a chance I might not have to suffer at all?
Why build a nuclear power plant today, when solar might work out tomorrow? Heck just shut them all down now. Sooner or later solar will make up the difference.
This is just a perfect illustration of lazy, unserious, green thinking.
In Australia where rooftop solar is ubiquitous and increasingly large scale solar is becoming common, we know that per installed kW or produced kWh rooftop solar is not terribly much more expensive than large scale ground based solar. I think I also disagree that mandation requires demonstration of superiority over 30 years. We know in Australia that systems pay for themselves quickly, typically less than 10 years. I suspect for high consumption customers in California the picture would be similar
I was dumbfounded when I first heard about this new mandate. Setting aside the impact on home prices, there are some other practical problems that the CEC likely didn’t address. For example, must homes be oriented to maximize PV production at the expense of aesthetics or safety (as in being buried under a few feet of snow when it slides off a roof)? What about those who live in snow country or areas that are fog-prone or will be building on lots with trees? Should solar be mandatory even if it’s provably not cost effective in those areas?
How did the CEC determine that a 40% improvement in energy efficiency is cost-effective or even feasible? Are those improvements part of the estimated $10,000 average increase in the cost of building a new home? Did they verify those figures with a variety of builders in a variety of locations> How did the CEC determine how much an average homeowner would save?
I never understood how a zero-net energy mandate would work because there was little or no information available that explained how seasonal surpluses would be stored. As Jim points out it’s clear the CEC and the unaccountable interest groups that pushed this proposal have taken the attitude that it should be “damn the torpedoes, full speed ahead”.
You go Jack!
That RPS standards “don’t care” goes to a largely unappreciated problem of quantitative standards. Quantitative emission standards don’t care either. At least if you’re trying to equate emission taxes with marginal damage costs, you are more likely to notice that the MDCs vary across time, space and setting (indoor vs. outdoor).
The fundamental problem is that we lose track of the relationship between the target and the ultimate objective of promoting the general welfare. Ad hoc targets also have a tendency to proliferate. For example, suppose the exemption for shaded houses leads developers to plant fast-growing but invasive albizia sapplings (whose branches break and fall on streets, houses, etc.). Now you have to have another law specifying the type of trees to be allowed. This is band-aid economics. Instead of getting rid of original policy distortion, politicians and bureaucrats patch on anther restriction, mandate, or subsidy.
I agree with everything Jim said in this blog. When I first read about the CEC proposal I was appalled for the same reasons Jim has cited.
In light of the CAISO Duck Curve it appears to me that California’s solar capacity is already past the optimal level. Until we get cheap storage there is a practical limit to how much solar the power system can economically absorb.
I have frequently considered moving back to California but the problems I see there, including the high cost of living made even higher by the politicians and bureaucrats have kept me in Washington DC – even though I loathe the hot summers and cold winters.
Until this decision the CEC typically took a much more sound and moderated approach to regulation. The ecomomics behind this decision seem fatally flawed from the outset. As your article and several others have pointed out, residential rates still do not reflect real-time system costs and net metering rates over pay customers for energy sales into the system and fail to charge enough for backup / energy sales from the system. Now add to that the massive costs utilities will incur from the distribution system, communication, and internal control systems necessary to manage the density of new solar installations- and all of these costs (because of the CEC mandate) will be passed on to customers by the CPUC. In addition, this solar mandate will skew system costs and drive out investment and research in other productive alternatives.
All around a really bad policy decision.
Thank you for your commentary. The real problem is that California’s “Groupthink” is working to banish a safe, economical, reliable, dispatchable energy source, namely nuclear power. An independent CPUC Intervenor, Californians for Green Nuclear Power, Inc (CGNP). is mounting a “David versus Goliath” battle against the interests promoting this “groupthink.” (CGNP’s website is CGNP dot org.)
The problem with placing large quantities of non-dispatchable solar and wind on the California grid is that fossil-fired emissions are INCREASED by such actions. The reason is that fossil-fired generators are required to have much higher “ramp rates” in order to integrate those intermittent generation means. Higher ramp rates are associated with higher fossil-fuel usage, hence greater emissions. Here’s the link to a 2010 analysis from Colorado wind power advocates. http://docs.wind-watch.org/BENTEK-How-Less-Became-More.pdf
The CEC mandate also increases the risk of difficult-to-extinguish “lithium battery fires”. Please search for the phrase “lithium battery fires” – 15,900 results were returned on 14 May 2018 via Google.
Nuclear power is not economically viable.
Ratepayers are being stuck paying for partially completed and cancelled plants.
I thought this was a “crises”? If this is a climate crises, why don’t we use every tool in the tool box, including nuclear power?
Seems like Diablo Canyon and SONGS in California are already built – why shut them down? We’ve already paid for them. Continued operations should be at marginal cost. Diablo Canyon alone generates 8.6% of total California generation and 23% of carbon-free generation. So the economically viable argument would appear to hold very little water. Unless of course they were MADE to be suddenly economically unviable by energy market manipulation. But who would do that in the middle of a climate crises?
If this is truly an environmental crises, how would they be reacting versus what are they actually trying to do?
In the case of Diablo Canyon, we would have to pay for it again to relicense it in 2024. PG&E projected that cost to be $100 to $120/MWH. There are many cheaper options. SONGS has it own operational problems, and faced similar relicensing issues and likely costs.
MCubedEcon has it right.
Nuclear (including small modular reactors) is in the $100/MWh range. And then you have an inflexible resource that cannot economically follow load.
By contrast, NV Energy, Xcel Energy, and other utilities have recently executed contracts for solar plus storage in the $40/MWh range. That produces a more reliable and more flexible source of power.
Given the number of nuclear reactors that have been terminated during construction, and the number terminated long before their expected operating lifetime had ended, it would be imprudent to rely on a high-cost, low-reliability resource. And, while SMR is a promising technology, it is utterly unproven, and because this is a crisis, we don’t need to experiment with high cost solutions when we can invest that money in low-cost solutions that can be implemented quickly
Think about it: Rancho Seco, Trojan, SONGS 1/2/3, Humboldt Bay 3: Terminated long before end of original operating life estimate; Diablo, WNP-2: Not cost-effective in the current market.
Hey MCubed and Anonymous – Totally fabricated inflated cost numbers for Diablo Canyon. In a 2016 cost study commissioned by the Idaho National Laboratory, the 2015 cost of Diablo Canyon’s generation was $27.10/MWH, about 1/10 the long-term supply contract cost to PG&E of $200/MWH for the trouble-plagued (and bird-killing) Ivanpah Solar-Thermal Plant. Ivanpah is the same plant that burns about 1 billion cubic feet (BCF) of natural gas annually.
Having submitted (confidential) testimony on Diablo Canyon’s going forward costs in PG&E’s 2019 ERRA proceeding, I have the documentation that shows that the going forward cost is much higher than $27/MWH. And that excludes the recovery of the sunk capital costs which are still substantial. PG&E projected that a relicensed DCPP would cost $120/MWH in its retirement application. I have NEVER seen a utility high-ball a cost estimate…
As for Ivanpah, it uses a technology that is now obsolete, in large part because it did cost $200/MWH. No one is proposing another plant like that one. Two applications at the CEC were withdrawn for plants of that type by Brightsource.
The days of non-dispatchable renewables are mostly behind us.
In today’s news, NV Energy announced acquisition of 1,200 MW of solar plus storage, at costs around $40/MWh.
““That’s really a paradigm shift from the utility had to take my power
whenever the sun was shining to the utility telling us what their
customer’s needs are and we design and engineer a power plant to fit
those criteria,” said Tom Buttgenbach, president and CEO at 8minute.
“The days of renewable equals intermittent and a headache for utilities
to integrate into their systems is now reversed to where this delivers
exactly what the utility wants.”
No sensible utility would want a high-cost, high-risk, non-dispatchable nuclear resource when they can get a very dispatchable low-risk, IPP-owned (so if it fails, neither the utility shareholders nor the retail consumers bear the risk of failure) renewable resource.
Not surprising that thousands of Megawatts of new wind and solar are coming into the market, but not a single firm order for an SMR, and only one large heavily subsidized conventional reactor pair still under construction.
The above (for profit) NV Energy claims should be taken with a grain of salt. For more accurate statistics, please refer to the (nonprofit) Kauai Island Utility Cooperative (KIUC.) experience. On February 22, 2018, KIUC broke ground on a “large” solar storage project. The electricity cost is a whopping $110.MWh. The battery-backed system will supply 20 MW for UP TO 5 hours. http://website.kiuc.coop/sites/kiuc/files/documents/pr2018-0222-Groundbreaking%20held%20for%20AES%20Lawai%20project.pdf The KIUC plant likely has a number of subsidies. The press release is silent regarding total system cost. The press release is silent regarding the expected battery lifetime. However using the Tesla PowerWall guarantee as a guideline, with deep discharge the guaranteed battery life is about 7 years. Diablo Canyon is 112 times as large as the KIUC project on a MW basis. Rather than running for 5 hours, Diablo Canyon runs for years at a time. Each Diablo Canyon operates independent of California’s aging natural gas distribution and storage infrastructure with an energy source that is refueled every 18 to 20 months. Diablo Canyon’s current capacity factor is over 91%
And PG&E said in its application to retire Diablo Canyon that the plant was likely to cost $120/MWH to run if it had been relicensed in 2024–costlier than the Kauai solar+battery array.
The $120.00 per MWh claim for DCPP power after 2025 is a total fabrication by PG& (or perhaps by MCubedEcon.) Please provide a source citation. However, PG&E has a long record of providing misleading information to regulators to enhance PG&E’s profits. See the Wall Street Journal article, “PG&E’s Long Record of Run-Ins With Regulators: A ‘Cat and Mouse Game’
Over more than two decades, the California utility has at times misled regulators, withheld data and hindered investigations—accumulating fines and judgments of $2.6 billion
By Rebecca Smith | Graphics by Joel Eastwood
Sept. 5, 2019 2:22 pm ET
Diablo Canyon’s costs will DECREASE as its large parts that needed to be replaced have already been replaced. The steam generators were replaced in 2008 and 2009. Other systems were upgraded so DCPP could run reliably and efficiently to 2045. California ratepayers have already been paying for those improvements. PG&E has been aggressively accelerating DCPP’s depreciation so it will have a “book value” of zero in 2025, despite having a depreciable basis of almost $8 billion, per PG&E’s current FERC Form 1 data. PG&E’s “cost of capital” for an asset (billed to ratepayers) is the product of the depreciation claimed for the long-lived capital asset and the rate of return allowed by the CPUC, currently between 10 and 11 percent.
Recent PG&E’s FERC Form 1 data, which must be affirmed (i.e. it is sworn evidence) at https://www.pge.com/pge_global/common/pdfs/about-pge/company-information/regulation/FERCForm1.pdf
PG&E’s FERC Form 1 for 2018. Diablo Canyon Costs are shown on Page 329 of 494 at $29.10/MWh, considerably less than $38.40/MWh for Colusa, PG&E’s modern combined – cycle gas turbine (CCGT) generator.
Diablo Canyon and Colusa’s costs are both considerably less than the cost per /MWh for either solar or wind when the generous taxpayer-funded subsidies are removed.
I have no idea why PG&E would prefer to close Diablo Canyon. It is one of it’s largest profit centers, and PG&E will gain no profits off the PPAs that it would sign with renewables that replace it. The retirement docket is A.16-08-006. The projected cost ranges are shown in PG&E’s initial testimony on p.2-22 in Table 2-6. As can be seen in this filing, the DCPP costs would increased substantially with relicensing (and its capacity factor decreased).
So if PG&E is lying in its CPUC filing, why would it be telling the truth in its FERC filing? Both are sworn filings, and the CPUC has a much stronger record of issuing fines to PG&E for misbehavior.
Regardless, as I’ve pointed out repeatedly, you also need to include DCPP’s annual capital additions to its variable costs to get to the actual going forward cost, which is what I did in the 2019 ERRA filing. That results in a cost between $40 and $50/MWH. (I can’t say the exact number due to an NDA in the case.)