Saturday, April 21, 2012

Part 1: Irrationality (A Working Sketch)

Every oil production site from a lonely stripper to the Ghawar complex needs a market and a means to market. Pipes over earth and tankers by sea circle the globe to fill this need. Sophisticated long-term planning and continuous coordination are required to maintain a worldwide balance between exploration, production, distribution and marketing. 

The photoelectric industry dances to a decidedly different tune -  a frantic, discordant, jumble of a song. Following several years of raw material and component shortages the market moved to a state of over-supply in early 2011. The oversupply condition has been attributed to the aggressive expansion of manufacturing capacity in China -  actually, it's not attributed to China so much as blamed on China. In a strange twist the situation has evolved into a cause célèbre with many wondering aloud how China has managed to expand production so fast. Some have claimed China is using a convoluted collection of subsidies to support this rapid expansion. Other say it's much worse. 

Brain-eating zombies

We have reports that China is using a slave army of commie zombie (comzoms) to build and staff their photoelectric factories. As if this wasn't evil enough, we've also been told the comzoms are fed a strict diet consisting entirely of cuddly baby animals - puppies, kittens, bunnies etc. The working theory among experts is that furry cuteness cancels out furious brain-lust resulting in a more manageable and productive workforce. Cross-referenced intelligence suggests the Chinese are instituting a massive selective breeding program to develop progressively cuter animals to fuel their growing army of comzoms. 

Brain-dead management

Of all the problems on the solar plate "too much" isn't one of them. Highly productive Chinese factories, even the fictional ones staffed by puppy eating zombies, ain't a problem either. This may come as a surprise but the solar industry's ailment has little to do with the bite sized prognoses thrown around in the press. Our cheerleaders don't want to admit the obvious, the U.S. solar industry is suffering from a severe case of demand-side mismanagement. Special interests within the solar industry and the federal government are the culprits. Here are the top management fuck ups.
  1. Irrational emphasis on utility solar
  2. Ineffective tax based incentives
  3. Gross R&D misconceptions
  4. Lack of Accountability
Back in December of 2007 the Edison Power Research Institute (EPRI) issued a whitepaper that succinctly described the photoelectric market like so:
"In all areas, the remote grid and residential and commercial building applications are expected to be economic before central PV plants compete at the wholesale level."
EPRI isn't pointing out the philosophical superiority of distributed solar over central solar. EPRI is pointing out that in all areas, distributed applications which displace retail electricity have a high ground advantage (economically speaking) over central plants that compete in wholesale markets. 

If distributed solar has better economics why have governments thrown so much money at utility scale solar plants? A story from Greek mythology may provide some insight. 


Pandora's "gift" to Epimetheus
It was a Monday afternoon when Prometheus warned his brother to avoid all gifts from Zeus. A fortnight later Zeus came a calling and the altercation went like so:

(knock, knock, knock)
Epimetheus: Who's there? 
Zeus: Eh, you know who... 
Epimetheus: Uh...
Zeus: Aww... cahm awhn... It's Zeus... How many other guys you know with thunderous baritone voices?
Epimetheus: Uh...
Zeus: Fuggedaboutit... I got someone out here you should meet
Epimetheus: I, I don't know... 
Zeus: Trust me... You'll thank me
Epimetheus: Hmmm... I don't know
Zeus: Open the GOD DAMN door!!!
(door opens)
Zeus: Epi, meet Pandora
Epimetheus: CRIKEY!
Pandora: Would you like to see my box? 
Epimetheus: Hummana Hummana Hummana... 

In this ancient myth, the seduction of newness is a root cause leading to the release of evil into the world. In the solar version of this story a well intentioned bureaucrat is sold on the shiny newness of solar. It's easy to understand how this could happen. When I first saw PS10 in person I was inspired. Pictures do this project no justice - it's an amazing site. I can see how a  bureaucrat would react similarly and maybe even get caught up with the idea of harnessing the sun at scale. While I can appreciate the situation you can't let yourself get carried away - you've got to look at the price tag before you sign the check. That hasn't happened. Billions and billions in tax grants, loan guarantees and special depreciation benefits have been given away with little regard to the uncompetitive economics of centralized solar. No amount of financial support can change the fact that centralized solar has no business competing in wholesale markets.  

FUBAR + Groupthink + Shale Gale = Shit Storm

Natural gas prices are currently at record lows. These low prices have been driven by the development of shale gas deposits using advanced directional drilling techniques (AKA: slant drilling) and a wondrous process called hydraulic fracturing (AKA: fracking). The ingenuity required to unlock these deep secrets is tremendous. Rather than celebrate the American know-how behind the Shale Gale many in the renewable press are hard at work setting up an adversarial situation. The handsome clowns and Silent Springers have set up shop and are busy manufacturing shit like this. 

A Greentech article recently asked, "Does the ascendance of cheap natural gas from fracking come at the expense of renewables?" This is a trick question. The first problem with this question is that it's framed from in a wholesale/utiity-centric perspective. The second problem is that it groups all renewables in one basket. There's no doubt that wind is going to have a tough time competing against natural gas in the wholesale market. Solar by contrast need not compete in the wholesale market and what competition there is between solar and natural gas in the retail market is relatively indirect. A quick overview of electricity prices shows this. 

An additional thing to consider is that the Energy component from the graphic is further broken now into Fuel costs, Capital costs and O&M costs. It's wrong to think photoelectrics are competing against natural gas. Photoelectrics are actually competing against natural gas + O&M + T&D +  Fees + Taxes. 

Dropping natural gas prices will certainly lower electricity costs but not as sharply as commonly believed. The imagined beef between solar and natural gas is actually bull. Low natural gas prices are good for U.S. consumers and the economy at large - an economy that needs all the help it can get. Anti-natural gas propaganda and confrontational journalism are no friends to solar. 

To be continued...

No comments:

Post a Comment