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The tangible intangibles July 20, 2012

Posted by Maury Markowitz in power grid, solar.
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One of the oft-used arguments by the renewables industry, and especially solar PV, is that there are all sorts of spin-off benefits you get by distributing your generation. For instance, if everyone generates their own power and just passes it around the block, you don’t need to build out as much long-distance power transmission. But how much are these effects really worth? That’s where the hand-waving begins…

No longer. In the wonderfully titled “Technical Potential for Local Distributed Photovoltaics in California: Preliminary Assessment“, the California Public Utilities Commission has figured all of this out. Generally, its good news all around.

Here’s a synopsis:

  • The grid can handle distributed generation to 100% of the local load. That is, if everyone puts up enough panels to net meter to zero, the grid will work fine.
  • A full half of the PV potential is on residential roofs. This sort of low-density power use is a perfect target for the advantages of distribution, as the “infrastructure-to-power ratio” is at its highest – its cheaper to install one big wire to a factory than hundreds of little ones to houses that use the same amount of power.
  • Almost half of the price of PV is offset by avoided costs. When this is considered in, PV is extremely attractive.

Let’s talk about that last point a bit. In a previous article I talked about how you can calculate the real price of the electricity coming out of a PV system. Here in the Toronto area, the price is about 26.5 cents a kilowatt-hour, in comparison to 6.5 to 11.7 cents if you buy it from the grid.

But when you look at your power bill and do a little math, you’ll notice that you don’t pay 6.5 to 11.7 cents, you probably pay somewhere around 15 cents. What’s the difference? Mostly the cost of getting that power from the distant power plant to you.

So right there you can say that the apples-to-apples comparison isn’t 26.5 cents to, say 8 cents. It’s more like 20.5 cents to 8 cents.

If you look a little closer, you’ll find that 0.7 cents of that 5 cents is the infamous “debt retirement charge”. What is that? That’s the cost of building Darlington back in the 1980s. Normally this is all hidden, but Darlington was such a disaster that they were forced to put it right on your bill – as opposed to what they normally do, hide it in your taxes. The cost of all the other power plants remains hidden.

So what if you add in the total costs of building power plants? That’s the kicker in the California report.

PV there comes in at about 20 cents/kWh, somewhat better than Ontario, which you might expect given the weather. The price of power there, just the kWh, is about 6 cents, a little lower than here. But then you have to tack on a couple of pennies for avoided transmission, another couple for distribution (overhead), a write-off for greenhouse gases, and finally 3 or 4 cents for avoided construction of new plants (“capacity”).

Add it all up and it comes to about 5 cents. Grid power is around 5 or 6. So then the added cost of using PV is 20 – 5 – 5 = 10 cents. That means if you want to add new capacity to the grid in California, and you do it using PV, it will cost, effectively, 10 cents.

Now, is that good or bad? Generally good. If you look at what the same organization calls the “market price referent“, building that exact same amount of new capacity using the cheapest form of centralized power we currently have – natural gas peakers – will cost you 12.5 cents. So in other words, California, as a whole, is slightly better off paying everyone 10 cents to build PV on their roofs, because otherwise they’d have to pay someone else 12.5 cents for the same capacity in natural gas plants.

It’s not clear to me how the numbers work out in Ontario. At first glance it seems we have another 5 or 6 cents to cover. Gas peakers cost the same here as they do there, so we’re just a little on the other side of the same curve. Yet the overall message is the same, getting people to put panels on their roof is not a money sink, and generally competitive as an overall solution.

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