Power System Jenga

Spiegel recently interviewed the German Energy Agency's head Stephan Kohler. The questions were softballs but I enjoyed the story. The standout point Kohler made was that the expansion of renewables in Germany could not continue in a willy nilly fasion.

Today anyone can build a solar power system wherever he wants. And anyone who owns one of these systems also has the right to be connected to the grid operator. Just take a drive through Bavaria, and you'll see entire fields full of solar power plants, even though there is zero consumption there and there is no grid. Solar systems should be expanded only in places where the electricity is needed and there are grids that can absorb it; in other words, in industrial areas, on stadium roofs and at indoor swimming pools. To that end, I would propose that the grid operators provide a map of available grid capacities.

I agree with his point here but I think he's incorrectly describing the direction of solar development in Germany. It is true that Bavaria's countryside is dotted with solar farms but those farms were the result of past policy. Current FiT policies make it difficult to build solar farms going forward. When I say difficult I mean economically difficult. Between September and October the FiT rates for solar farms fell from18.76 cent/kWh to 13.5 cents/kWh. The much lower FiT suggests Bavaria's countryside will see far fewer solar freckles in the future.

Kohler also takes a shot at rooftop solar.

SPIEGEL: You would get rid of Germany's Renewable Energy Act?

Kohler: It is pure insanity! You put a solar panel system on your roof and, thanks to government guarantees, you don't have to do anything more except make sure that you clean the snow off the panels in the winter. We now have to say to everyone who benefits from this feel-good law: Listen, people, it can't go on this way!"

Ooh la la! An exclamation point... He must mean business... I think Kohler is over-simplifying the issue here and again using past policy to project into the future. As I've repeatedly pointed out here the captive use (AKA: self-consumption) of generation will increasingly become an essential part of operating a photoelectric system profitably in Germany. Raising self-consumption rates will require investment in energy managing equipment. The profit motive may have driven willy nilly expansion in the past but it encourages much more controlled expansion going forward. This will lower the grid costs Kohler is so rightly concerned about. I must say though... It's a pity to see this situation being so grossly mischaracterized by the man who should see it most clearly. Less and less is solar a government promise where benefits accrue thanks to a feel-good law. The government policies have actually worked to build a competitive beast child. More and more is solar an industrial endeavor. Kohler should be able to see the potential.

Here's a snippet of Kohler's thoughts on conventional plant dynamics.

We have to make sure that operating power plants remains economically attractive. Nowadays, solar systems are often in operation around noon, when there is high demand for power and the price was high in the past. As a result, conventional power plants can no longer make enough money, which is why existing plants are being shut down and no new ones are being built. Anyone who guarantees the security of supply in the future has to be paid for it, even if his power plant is only needed at certain times.

Again, I can see his point here but I think you need to let the competitive process work itself out. I suspect Kohler is prejudiced to reliability over economics because that's the way grid operators rank the priorities. I'm this way too but that doesn't mean we have to be pussies with the power system. I agree we want to make sure that operating the power system remains attractive overall but that doens't mean all power plants have to be profitable. Imagine a game of Power System Jenga. The objective is to keep the system intact while you remove the least competitive and least structurally important power plants. Power system operators have been playing Power System Jenga for over a 100 years - we're just playing with a more complex structure now.

If you decommision a power plant this lowers supply which should then naturally lead to higher prices on the energy exchange. The remaining power plants make a little more money. If more solar comes in you'd expect the extra supply to push down prices until you expose the next weakest link. If it's not structurally essential you remove that link and keep playing the game. It looks as though Kohler is trying to make the point that solar is not only reducing prices but also lowering reliability. Solar, in other words, isn't playing by Hoyle's Handbook on Power System Jenga. There's a pinch of truth and a pile of lie in this position.

Solar produces intermittent supply but consider that loads produce intermittent demand. Is the supply of solar more intermittent than the demand from load? Is it technically possible to match up the intermittencies of solar and load such that you get a smoother output which behaves more harmoniously with the existing system? I think so. I also think it's economically desirable.

Technically achievable + Economically desirable = Hot Damn!

Let me finish by coming back to Kohler's strongest point - the anchor of the interview.

...A grid map would give us the opportunity to control the installation of additional solar systems to minimize additional grid costs. And it would also give us a tool to finally prevent too much power from migrating into the grid. Under the current circumstances, we have to invest about €28 billion ($36 billion) in the distribution grid to integrate renewable energy, while we have entire areas where there is still available grid capacity.

A grid map seems like a fine idea but why not take it one step beyond that and put a locational marginal price (LMP) on electricity that scores the reliability related aspects of the electricity and assigns a price to those aspects. This would give us a better idea of how much renewable energy costs outside of the EEG surcharge. Between a grid map and an LMP signal you not only have a better idea of where to build but you also have a better method of choosing the next coal plant to remove from the Jenga stack.