Monday, June 20, 2011

FiT FiT FiT FiT Changes

The Germans decided to phase out their nukes in reaction to Fukushima. Can't say I blame them. The nuclear phase out coupled with the lethargic PV installation numbers so far this year have resulted in a decision to hold the FiT rates where they are rather than cutting them on the first of July. This means my previous projections won't apply.

Using my standard logic in regards to the connection between the FiT and system prices would lead me to believe that system prices are going to stay relatively flat at their current price give or take.

I see two big-picture things which could cause prices to go lower. The first one is interest rates creeping up. Higher interest rates mean system prices need to fall to maintain overall profitability. I think we've already seen interest rates climb up a smidge but I haven't rigorously verified this. The second thing that could happen would be a discontinuity in module prices. It seems everyday I read about all this inventory that's been building up in warehouses. This isn't 2009 though... We don't have all the expensive poly cushion built into module prices that we did back then. Margins are already tight so it's not as though manufacturers can come down in price that much.

Q2 average prices are 2422 Euro/kW according to the BSW. I had originally expected average prices to get all the way down to 2000 tp 2100 Euro/kW in the second half but I can't see this happening. I see prices staying mostly flat for the next six month and will be plesantly surpriced if they end the year under 2300 Euro/kW.

These system prices along with the expectation of a small bump in German retail electricity prices should lead to a strong finish to the year. The installers have been sitting on their asses and they've got to be ready to get back to work. I could see them averaging over a GW per month for the rest of the year. We've seen GW+ months before but we've never seen a long string of them. My wish-guess is that we see a string of GW+ months and end the year with 8 to 10 GW installed. This is a preposterously high guess given the state of things. What can I say? I'm high-pothesising.

Thursday, May 26, 2011

German installation cost updates and other ideas

In Germany there's a connection between FiT rates and the price of PV systems. Market forces have conspired in such a way that the IRR for residential installs stays relatively steady at around 8%. Given a reasonable set of assumptions we can guess what system prices will do as the FiT falls. In my experience you get surprisingly accurate projections for how average system costs will change. Last year around this time I sketched out how I saw Germany's installation costs trending during the next year. I figured prices would trend to around 2500 Euro/kW for 2011. According to the BSW, Q2 average prices are 2422 Euro/kW so my guess work was pretty good.

Current average price: ~2422 Euro/kW
Estimated LCOE: ~19 cents/kWh
Current best FiT: 28.74 cents/kWh

Last year's sketch was done before Germany set in motion plans to accelerate the FiT reduction in the second half of 2011. Here's the projection for the second half.

Steepest case scenario: If the FiT drops to 24.43 cents/kWh in the second half you'd expect system prices to get down to 2000 to 2100 Euro/kW. Jumping forward to 2012 the worst case schedules imply system costs will come down to a range of 1800 to 1900 Euro/kW. I don't actually expect a steepest case scenario. These numbers are for benchmarking only at this point.

One thing to look out for is how retail electricity prices should start buoying system prices next year in an appreciable way. Consumers are increasingly running into this sort of choice.

1. Selling the kWh for a profit of 7 cents
2. Using the kWh for a savings of 10 cents

This spread creates an extra profit potential for those willing to manage their energy use. How big is this incentive? Some behavioral changes should come naturally. For example, in contrast to what we've normally heard about running appliances in off-hours, the German FiT structure will increasingly incentivize PV owners to run appliances during the day where possible. For the sake of argument, let's say there's 100 Euros of annual savings that can be captured by consumers who purchase smarter appliances and make minor adjustments to when they do the laundry or run the dishwasher. This isn't a whole lot of money but my thinking is, well hell, recycling is more of a pain in the ass and saves me less. This seems like it has potential so I've been trying to dig into the question.

How do you more accurately quantify the possibility here? To understand the problem it helps to step back a few years. Before the self-consumption kicker was incorporated into Germany's FiT schedule it was more straight-forward to model the profitability of a PV system. The expected annual production, interest rate, FiT rate, discount rate, maintenance and insurance costs were the primary variables that determined profitability. The self-consumption kicker creates a more difficult modeling procedure. You can't simply look at annual production - you have to look at your hourly production and determine what percentage of that production will be self-consumed. To try to solve this problem you can:

1. Compare historic weather patterns against historic load patterns
2. Run a synthetic weather generator against a synthetic load generator
3. Use a thumb rule guess and assume that 30% of production will be self-consumed

My estimation procedure has always used option three but I think option two validated against option one is the optimum procedure. Although one might well exist, I don't know of a software package that models self-consumption directly. That said, there are definitely individual packages that synthetically model weather and/or load individually - i.e. Tools already exist to model this problem.

What would you want to find with your modelling? As a first order of business you want to find out what your natural self-consumption is. Natural self-consumption is the amount of consumption that "naturally" lines up with production. No fancy appliances required, no behaviors are changed. Once you have this baseline established you can start modeling managed self-consumption.

How could you manage consumption? One possibility is heat pump water heaters. This appliance has two attributes which allow it to help manage self-consumption. 1. HPWHs use electricity 2. HPWHs inherently store a product (hot water) which means you don't have to buy an extra storage device. If, as described above, you can model when you think your PV system will be producing against when you think you'll need the hot water you can estimate your technical potential for shifting. How much of this technical potential can be captured will be determine by running an IRR of the cost of shifting vs. the savings of shifting. Honestly, I don't know the answer to this question - not yet at least.

All this Goldbergian musing is established on the idea that we'll see a sizeable spread between the price one gets for taking the FiT as opposed to the savings captured by using the electricity instead. This spread will exist even after the self-consumption kicker is discontinued and, more importantly, it should increase as the FiT and retail electricity rates continue to diverge away from each other in 2012 and beyond. Will it be big enough to drive hot water arbitrage? I think there's a good chance.

One other random thought... PV electricity allows one to escape grid fees but it doesn't make the grid fees go away. As Germany adds more and more PV the grid fees will have to be divided over fewer kWhs sold. How much will this make electricity rates go up? Divide grid fees by total kWhs sold today compared to total kWhs expected to be sold at higher PV penetrations and you've got a good estimate.

Thursday, January 13, 2011

PEPE

PEPE started out as a simple LCOE calculator aimed at modeling the economics of German photoelectric systems. I already know what you're thinking. LCOE modelling party at my house? Boy if I had a nickel for all the LCOE modelling parties I've thrown... Sigh... Anyways, I found the economics of the German market relatively easy to simulate with the exception of their self-consumption incentive. The problem I had with the self-consumption incentive was that I couldn't track down much information about what the typical self-consumption rates were. This bugged me. I figured a reasonable way to tie up this issue would be to estimate hourly power production and compare this value against hourly power consumption. I knew this would be challenging but I thought I'd investigate what was out there. Some googling led to a photoelectric simulation program called PVFORM that was supposedly open source. I wrote letters off to all the usual suspects asking for a copy of the code and wouldn't you know it, the next thing I knew I had a copy of code. That was bitchin. After a few weeks I had broken apart the FORTRAN and transferred what I needed onto an excel spreadsheet. I didn't know any FORTRAN at the beginning of this process so that was a fun little adventure. My initial prototype had trouble running the Fuentes Thermal loop so I rewrote the code in VBA, yet another language I knew nothing about.

On the one hand the process was frustrating but on the other I was having fun tooling around and learning stuff. It's sorta like golf I guess. You don't need to be good at it to have fun playing it. But I digress... Somewhere along the way I started getting emails from the Intellectual Property people at Sandia (iPal). I had contacted them as part of my "Can I have a copy of PVFORM?" spam campaign. The exchange went something like this:

Me: I heard PVFORM is in the public domain. Can I have a copy.
iPal: PVFORM is not in the public domain. Sorry, we cannot give you a copy of the source code.
Me: No worries. I found a copy. I've already striped it apart and rewritten it.
iPal: Wait? What? Somebody screwed up by giving you that source code. My bosses are pissed. What do you plan to do with this work?
Me: I thought I might upload it into the internet machine.
iPal: You will need to get a license to distribute our program

Enter Dave Menicucci

Dr. Meniccuci: That program is 20+ years old and well passed its prime. Those guys are full of it. All the code you used has been repeatedly published.
Me: Would you mind talking to them?
Dr. Meniccuci: Sure.

Something, Something, Something...

iPal: We don't care if Dr. Menicucci is one of the original architects of the progam. He does not own the rights to PVFORM. We do.
Me: Fair enough but I don't want to sign these licensing papers you've sent me. I guess I just won't distribute your code then.
iPal: Please reconsider... You'll have to get a license if you want to distribute our code.
Me: What I'm saying is that I don't need your license because I won't be distributing your code. I'd rather build an entirely new model that doesn't use your code and distribute that on my own terms.

The exchange was unfortunate but that's just how life goes sometimes. By the end of all that emailing I had been studying photoelectric modeling for several months and already had a paper in mind that I could use to build a new model. This new model I was looking at described the workings of a popular photoelectric performance program (that's a lotta pees) called the Solar Advisor Model (SAM). Ironically enough, SAM just so happens to be "owned" by iPal. The key difference between copying PVFORM and copying SAM was that I could use the King et al. paper I had as an instruction guide. The important point here is that the mathematical equations in the paper aren't copyrightable material so if I used them to build the model they described I could publish/distribute that model without having to worry about getting permission from anybody. Bam... Lawyered.

After a few months of sporadic coding and increasingly less interesting debugging I've finally finished off a rough draft of PEPE. He's ready to be uploaded into the internet machine.

Remaining issues:

1. Find out or estimate what the boundary conditions are for sunrise and sunset hour calculations.
2. Refine the day angle, hour angle, declination, zenith, azimuth and incidence angle formulas such that the proper level of accuracy is achieved.

When I have the time (which I'm running short on at the moment) here are my plans to improve PEPE:

1. Add an optimization algorithm
2. Add an internal weather generator
3. Incorporate additional models for radiation, inverter performance etc. I specifically want to incorporate the 5-parameter model.
4. Break up the program into sub-routines
5. Move the Financial calculations into VBA
5. Decryptify the interface
7. I could keep going here. The primary reason it took me so long to get PEPE up to beta was that I was getting distracted by all these bells and whistles that I wanted to add in.

PEPE was not a one man project. I've been a translator of other people's work for the most part. I should be honest... for the whole part really. For their encouragement and technical assistance I have to thank all those who have helped with PEPE so far. They made it possible. They made it fun.

Chris Cameron
Chris Gueymard
Paul Gilman
Alfred K├Ârblein
Bill Marion
David Menicucci
Daryl Myers
Joshua Stein
Frank Vignola

Friday, January 7, 2011

A Strange Marriage?

The surprising reaction to this article gave me a Hmmmm moment. Anybody in the power industry knows the environmental community has a history of blocking the development of coal, nuclear and assorted other power projects. Recently, large scale photoelectric projects have drawn the ire of the environmental community and all their obstructionist lawyers. The standard press on this issue has headlines like Photovoltaic Energy: Ecologists vs. Environmentalists, In California, it's solar panels vs. redwoods and Environmentalists in a Clash of Goals. This situation has been fodder for all sorts of morons who don't like photoelectrics or environmentalists or hygiene.

I had a thought today. What if the environmental community's firepower could be directed towards distributed photoelectric legislation? I mean, these enviros love fighting the utilities as it is. Stick it to the man and all that. Here we have a situation where the enviro lawyers could fight for distributed solar legislation as an alternative to simply fighting against mega-pv projects.

I'm old enough that directly after thinking I've had a good thought, I know to look around the internet expecting to find it's already been thought. Sadly for me, all my good thoughts so far have already been thought up. This latest thought and subsequent search for similar thoughts led to a similar result. Typically my reaction is... DAMN! but here my reaction is, RIGHT ON!

Overall it appears as though this idea is relatively new. As a test of sorts I wrote Ken Zweibel and asked him if he was still focused on Desertec type projects. His response was:

"I have been thinking a lot about this lately and coming closer to your viewpoint. I am still looking for more info on transmission costs, which are where the issue of cost differential arises...Quick answer: I think this is a hot topic and worthwhile of a lot of discussion."

Now... I have railed against Desertec type schemes in some of my posts. I don't think I ever called Ken out but I have certainly had him in mind when I wondered why the hell brilliant people like these ideas. Well... Today Ken made me proud. If a guy who has championed the most grandiose style of photoelectic power plants is giving things a second thought that's pretty cool as far as I'm concerned.

I'm tempted to write a few letters off to the Sierra Club and find out just how organized and well informed they are. At the end of the day, I can say with a straight face that I want to change the world for the better. I believe photoelectrics are a way to do this. Seems there's a real opportunity here... A real strange opportunity.

UPDATE: I've sent off several emails to several organizations: SolarDoneRight, basinandrangewatch, protectourlands and the head honcho Sierra Club.

The responses has been almost universally positive. A couple things to note are.

1. Nearly all these organizations (save Sierra Club) are run by volunteers. They are active people with lives of their own. You might not get a response from the first organization you contact but you will get a response eventually. What I've found is that these organizations are connected and trying to work together towards a positive goal. The goal is protecting the environment and promoting distributed solar development - generally in that order.

2. Sierra Club responded immediately and politely. The initial responder promised to send my letter up the the chain of command. What the higher ups think is left to be seen.

2a. The Sierra Club's former director of renewable energy development is a fellow by the name of Carl Zichella. Carl has taken a lot of flack for some of his decisions. Some of the folks I wrote to responded that Zichella is no ally to their efforts. I don't know if Carl moved on from Sierra Club voluntarily or was pushed out. I don't wish to speculate. What I do know is that he's pushing a similar agenda of big transmission via his position with the NRDC now so they (the NRDC) can basically be written off for the near term.

3. I've continued to think that getting the environmental community on board with lobbying for small PV vs. big PV is a good idea. But I'm starting to think that another entity might just kill big PV before the environmental community has a chance to become truly organized. This entity will be the developers that win RAM contracts and prove that smaller scale projects can deliver prices that the mega-pv developers won't be able to compete with. These RAM developers will show that their costs, while higher on a $/kWh level at the unit breaker are lower when transmission costs are added in. They will do this by pointing out that projects like the Sunrise Powerlink are very expensive and when you include those costs the mega-PV projects are mega-losers. This is nothing more than a theory... We will have to wait and see...