Clean Energy Bottlenecks

While there are many bottlenecks that constrain the deployment of renewable energy, two fundamental challenges that inhibit significant deployments seem eminently solvable, even within realistic understanding of political, cultural, and financial constraints.

When it comes to renewable energy,the simple reality is that :

High-cost money + High-Cost + Risk Technology = Exorbitant Pricing = Minimal or Slow Deployment = Marginal Impact

And, therefore, the clear corollary:

Low-cost money + Low-Cost + Low-Risk Technology = Affordable Prices = Market Penetration = Real-world impact

Renewable energy electricity options (with the general exception of biomass) are capital intensive but have low maintenance and operational costs. Pay upfront and reap the benefits for a long time to come. A hydroelectric dam is far from cheap but can provide electricity for a century or more with nearly zero marginal cost for each additional generated electron. If we look at the major hydroelectric dams around the nation, they were developed with low-cost government money and leveraged existing technologies. America’s hydro-electricity was therefore developed with the model of low-cost public money (with public ownership) + low marginal cost technology to deliver affordable electricity for generations.

For a variety of reasons — good, bad, indifferent — decisions more recently have driven projects toward the “high” rather than “low” cost option. Offshore wind for New York State provides an excellent example of this issue.

Offshore wind development concepts for New York State (off Long Island, essentially) can be summarized as follows:

Private money + private ownership + far offshore.

This translates into very high-cost electricity, somewhere above 25 cents per kilowatt hour.

Now, let us be clear, “far offshore” has several significant advantages. Wind quality is better, thus enabling electricity production for a higher percentage of the time (higher capacity factor). It also allows for deployment of larger wind turbines and corresponding increases in generation efficiency. Siting far off-shore is also far easier as there are fewer competing interests (waterways, fisheries, aviation approaches, radar). Finally, it is ‘out-of-sight, out-of-mind’ and thus offers a path to avoid irrational NIMBYism.

However, at this time, deepwater offshore wind is mainly in the experimental and early commercial proving stage. Further, all things being equal, farther offshore and in deeper water will mean higher capital and installation costs (such as for additional cabling).

And, the common reality of the financial world is that private investors and private ownership have a very different profit model than community or public owned projects. In the latter ‘externalities’ like job creation and pollution reduction can legitimately be counted into the return on investment calculation.

The combination of private money + private ownership + far offshore is driving projections of delivered LCOE (levelized cost of electricity) in the range of 30 cents per kilowatt hour or higher for wind projects off Long Island. This is roughly 3x the average cost of electricity in the United States. Such pricing — well outside the ‘norm’ for the U.S. electricity market — flings the doors wide open for legitimate challenges as to whether this is the best choice for New York utility customers.

That said, there does exist an alternative to the private money, private ownership model in this case. New York State has the luxury of having options that could, quite dramatically, change the calculation.

Let’s tackle the equation in order:

Public Financing: The key utilities (NYPA and LIPA) have strong cash positions along with excellent bond ratings. A multi-year, multi-billionaire dollar offshore wind project with the security of assured power customers for years to come will drive down financing costs by a significant amount (likely by more than half).

Public Ownership: LIPA is a non-profit municipal power authority. Having LIPA as the owner/operator essentially eliminates the direct profit motive and will, therefore, could drive down prices to the customer by 10 percent or more.

Low-Risk Technology/Deployment: Long Island has excellent wind resources in many of its shallow water areas. With large numbers of operating wind farms offshore in shallow waters around the world, the technology, deployment, and maintenance issues are all well-known and present minimal risk for failure. A significant offshore wind project (10s of gigawatts) could be developed near New York City in shallow water areas.

When one flips the equation to public financing + public ownership + near shore deployment, the LCOE falls dramatically. According to one New York State wind expert, David Bradley, flipping the equation like this should drop the LCOE from more than 25 cents to well under 10 cents per kilowatt hour. In fact, Bradley calculates that this approach would deliver clean electricity to the grid at about 7.5 cents per kWh. With a reasonable 2.5 cents added on for various costs (such as transmission and distribution, etc), this would mean powering New York City with clean electricity at a cost of 10 cents per kWh, roughly half what New York area consumers currently pay for electricity.

Why does this matter?

The New York City metropolitan area is one the world’s largest and richest urban areas. While New Yorkers already are roughly half the carbon impact of the average American, there is a quest (see for example, Plan NYC and this new ebook on Mayor Bloomberg’s Hidden Legacy) to reduce that impact as part of a larger climate mitigation and climate adaptation strategy. Replacing fossil-fuel sourced-power — reducing the carbon footprint of New York City area electrons — is part of the agenda.

Offshore wind is the only local renewable energy resource that could produce enough electrons to cover 100% of the area’s electricity requirements. While absurd to consider such a single-point solution, the Metropolitan area will not be powered by locally-generated renewable energy without a serious offshore wind contribution. At over $0.30 per kilowatt hour, it is hard to see this occurring while it would explosively move from potential to actual electricity production at $0.075 per kilowatt hour.

The carbon impact is far from the only issue. As with other renewable energy options, offshore wind investments translate quite directly into job creation with much of that inexorably occurring in the local area. An offshore wind program targeting over a gigawatt of capacity within the decade would mean 10,000s of jobs in the metropolitan New York area (from construction workers to accountants to the financiers on Wall Street trading LIPA bonds). The billions to construct the wind projects would have a serious local economic multiplier effect. And, serving New York City with very stable and low cost (clean) electrons would improve economic competitiveness with areas that pay more for (dirty or clean) electrons and help keep (or attract) businesses into the region.

Beginning construction of near-shore wind farms would have another set of benefits: creating the necessary infrastructure to leverage future developments that lower the risk and infrastructure cost of far offshore, deep-water ‘out of sight, out-of-mind’ wind farms so that, with each passing year, New Yorkers energy requirements would be met with local, renewable energy resources.

New York state has a choice to make: will they take advantage of some of their unique advantages for developing clean energy or will they fall into the same old narrative that clean energy is too expensive to be widely used?

*For those interested, the end of this blog post has more information about additional advantages of renewables that get rolled up in general discussions of price.

Image Credit: By OscarUrdaneta (собственная работа) [CC-BY-SA-3.0 (]


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