In a recent post, I discussed why the US needs, on average, 15,000 additional megawatts (“MW”) of new power plant capacity – each year! – just to keep up with the growth in domestic demand for electricity. How many new power plants have to be built to accommodate this national thirst for energy?   Two power plants a year? Five? Ten?  And what  if all of that new power had to come from renewable energy – say solar – as so many in the green community suggest it should, or more urgently, demand it must!? Is it even technically feasible to satisfy our annual electrical demand growth from solar alone?

Of course, the number of new plants (or generating units) needed to supply 15,000 MW of new capacity each year depends on your technology of choice.

• 15 – Large scale 1,000 MW coal fired or nuclear power plants
• 30 – Medium sized 500 MW natural gas, coal fired or nuclear power plants
• 7,500 – Utility scale 2 MW wind turbines
• 75 million – 200 Watt solar panels.

In reality, 75 million solar panels a year isn’t enough. It’s too low because solar panel manufacturers rate their panels DC whereas our electrical grid uses AC power. Using an approximate conversion factor of 0.85, the real number would closer to 88  million – each year. Are we done? Install 88 million solar panels each year instead of 15 large coal or nuclear plants? Hardly.

There’s the pesky matter of cloudy days when a solar plant can’t produce at full power. That’s the rub with most renewable power including both solar and wind. It’s intermittent and you can’t count on all of it being there when you need it.  On average, a typical solar power plant might have a capacity factor rating of roughly 20%; even lower in locations with less abundant sunlight.  Said differently, you could build a 100 megawatt (“MW”) AC solar facility but on average you could only count on 20 MW (20%) being available on any given day. But there’s a niggling problem with that that word “average”. On a bright, clear sunny summer day that solar plant might  produce 100 MW (100%) power during midday. But on a cloudy day in winter it might only produce 5-10% of peak output. In fact, it might rarely ever produce at exactly the 20 MW average. And then there’s mornings and early evenings when the sun is waxing and waning and only a fraction of the 100 MW nameplate rating is produced. Finally there’s that inconvenient daily event…..called night….when the output of  a solar plant is nil, nada, zip – all night long.

Follow this to its logical conclusion and you might want to have some backup power plants that can fill in for the solar plants when the sun doesn’t shine (or shines less than needed for solar output to meet the electrical demand).  And these backup plants had better be ready when you need them – the very definition of “firm capacity”. Today, firm capacity comes from fossil (mostly natural gas and coal) and nuclear plants. By now you might also be tumbling to the fact that 100% of our electrical needs cannot be met with intermittent renewable energy like solar and wind. Simply stated, until we figure out how to store massive quantities of electrical power economically, we need the kind of firm capacity that can only come from fossil and nuclear power plants.

Please don’t misunderstand me. I’m a big fan of renewable power and solar in particular. I think solar has… (forgive me) a sunny future! However, green energy proponents who oppose all forms of fossil power may be the greenest of green advocates but all too often appear willfully ignorant of the realities of delivering reliable electricity 24×7 to consumers.

Today, regulated utilities, independent power producers, regulatory authorities, politicians and rate payer advocates are all engaged in a healthy debate over what percentage of renewable power is practicable.   There is broad consensus that at least 25% of the our electrical power demand can be met with renewable sources. The “25 by ’25″ resolution recently passed by the House Representatives expresses the sense of the Congress that by the year 2025, at least 25 percent of total U.S. energy will come from renewable, domestically produced sources. Since we’re at approximately 9.5% today (source EIA), if enacted into law, we would need an incremental 15.5% over 16 years.

Let’s assume for a moment that all of this incremental renewable energy were to come from solar (admittedly unrealistic but bear with me here). The US currently produces/consumes approximately 4.1 billion megawatt-hours of electricity annually. 15.5% of this is about 615 million megawatt-hours. Assuming 99% reliability and a 20% solar fleet capacity factor, this would translate into 431,050 megawatts DC of newly installed solar panels. Assuming 200 watt DC panels, we’d need approximately 2.2 billion new panels to hit the 25 by 25 target.  If we built one large 431,050 megawatt DC solar power farm, we would need 3,368 square miles of land (assuming 10 acres per megawatt). To put this into perspective, that’s a square parcel of land 58 miles by 58 miles or approximately 0.1% of the total US land area excluding water bodies. You could circumnavigate this solar plant in roughly 4 hours driving at 60 mph. Imagine this facility being located in the hinterlands of the greater southwestern US. Not too hard to imagine, no?

Ok, so we meet our national mandate of 25 by 25 with a 60 mile square swath of solar panels (of course in reality never all at one location and not with 100% solar). I don’t know about you, but I still want electricity at night and on cloudy or rainy days. So lets talk about backup power for the 25% of energy coming from solar. Backup power would only need to operate at night and partially on some, but not all, days during daylight. This intermediate load resource would have to be the lowest cost to build while also not costing too much to operate. Nukes are VERY expensive to build, difficult to finance,  although cheap to run – not the best fit for  backup. Coal plants are relatively less costly than nukes but more costly to run (and getting costlier if you assume carbon taxes or carbon capture/sequestration) plus they have an enormous carbon footprint that threatens their viability. Just try to permit one today. Good luck. That leaves simple and combined cycle gas turbines burning  natural gas. Least cost to build, much lower carbon footprint than coal, financeable, easily permitted and reasonable cost to operate provided natural gas supplies remain abundant and reasonably priced. The good news is that the long-term natural gas supply picture has improved greatly over the past 2 years and prices have come down accordingly.

So there you have it. Solar, wind and other renewables generating at least 25% of our energy backed up mostly by natural gas and maybe a few more nukes. As coal plants retire, a mix of new renewables and gas fired plants will take their place. The renewables mandate may even increase towards 50% or higher over time. A diversified mix of solar, wind, geothermal, and biomass may even require less backup power than initially thought especially if the electrical grid is expanded. Should large scale power storage becomes feasible, the days of fossil fired power may eventually fade.  Until then, fossil based power generation is going to be part of the mix. Welcome to the future of our electrical supply – real or imagined?

Given the volumes of print, video and chatter on  climate change, the evils of coal (including those mythical  “clean coal” types) and the panacea that is renewable energy, the average person could be forgiven for wondering why on earth the people who are in the business of producing and selling electricity aren’t running – instead of crawling or being dragged – towards something as reliable, clean and universal as solar power.  Notwithstanding some movement towards solar in states like California and to a far lesser extent New Jersey and Connecticut (the majority of which is small distributed roof-top projects), the vast majority of U.S. utilities have barely budged towards adopting solar in any meaningful way. Not that they aren’t aware of solar or aren’t sudying it mind you. They just aren’t buying into big megawatts of it. Why is that?

If you’re a rabid environmentalist the usual suspects are “big oil” and similar dark industries with sinister motives that are effectively blocking renewables while the earth withers.  If you’re a coal miner, you’re hoping like hell that those same suspects are effectively blocking those tree-hugging renewables and protecting us from destroying our domestic economy and electricity supply system as they tear the top off another Appalachian mountain for another layer of coal.  At least this is the general impression you get from reading most blogs and the conventional news media.  So of course it must be true.

Or maybe not.  Our friends at the Solar Energy Power Association (SEPA) decided to take a more direct approach and simply asked the utilities about their views on buying solar power.  SEPA just released the results of its Utility Procurement Study entitled ”Solar Electricity in the Utility Market”.  Not exactly light casual reading, this 117 page report gets high marks for being candid, clearly written, and a surprisingly comprehensive overview of how power, especially renewables, have been purchased by utilities over the years. And then of course there are the conclusions.

1. Solar is just too damn expensive and so far utilities can get all the power their customers  need from lower cost sources
2. When utilities do buy solar, they buy it because they’re made to do so by state laws and regulations that say buy it anyway, price notwithstanding (thus their collective asses are covered by regulatory mandate as they pass on these politically acceptable higher costs to their rate payers)
3. But utilities really do like the non-price features of clean,  no emissions, no-carbon solar energy ……really, they do….a lot….it’s on the top of their like list
4. The solar developers need to suck it up and stop bitching about the tough terms and conditions of the power purchase contracts
5. The solar developers need to learn how to make firm price bids and then stick with ‘em – just like all the other developers – sure, all you solar guys are special but you aren’t that special
6. The utilities need to chill some and start offering kinder, gentler long term power purchase agreements that weren’t written by lawyers from hell (hope springs eternal!)
7. Utilities need to take some 400 level courses on solar and the solar developers need to supply the instructors and coursework
8. Utilities just aren’t very impressed with the on-peak aspect of solar and wish the developers would stop harping about it – and developers have a hard time believing this for good reason
9. The cost of solar energy needs to come down and when it comes down far enough the utilities will run….not walk….towards solar. Depending on who you talk to this is 2-5 years away from a tipping point.

So there you have it. Mostly solar costs too much. The report goes into much more detail of course but it more or less makes many variations on the above points albeit with dryer language.

Notice the absence of big oil or other dark sinister actors? Unless you consider the uitlity business to be inherently dark and sinister. But really, utilities just want to keep the lights on, the politicians happy, and the regulators off their backs while they earn a 10-15% return on invested capital. Is that asking too much?

Bottom line on solar energy and most other forms of more expensive renewable energy is this:  If we’d all agree to accept paying twice as much for our electricity then we do now, then solar, and renewable energy generally,  would explode and over the next 10-20 years coal would slowly recede. Who’s ready to sign up for doubling their power bills?  Don’t all raise your hands at once.

Alternatively, the feds could lead with a nationally mandated renewable energy portfolio standard with painful consequences for non-compliance by the load serving utilities. See item #2 above for clarification. Either way we would end up paying much much more for the cleaner energy we need – say maybe twice a much.

It’s really not much more complicated than that.  Call or write your state utility commissioners and state representative and tell them that it’s ok to double your electrical bill if that’s what it takes. And you won’t bitch or hold it against them during the next election. Promise!

Anyone with money invested in the stock market already knows the bad news. But let’s review. Over 35% drop in the DOW over only a brief few weeks. Up to 1,000 point daily swings that richochet around world markets at the speed of light. Scant assurance that the floor has been found. Lousy earnings reports. And a general consensus that the way out of this mess will be down a very long and rough road.

Good times for bottom feeders flush with cash. Meanwhile the rest of us squint into the gloom looking for signs of life after recession. The good news is you don’t have to look too hard to find an emerging area of opportunity. That bright spot is the new alternative energy economy already emerging out the perfect “energy” storm that will likely rage on for years to come. That perfect storm is the trinity of declining supply (& increasing cost) of conventional fuels, climate change, and the growing recognition that real energy independence is now synonymous with improving our national security (sans body bags). For those who would offer the recent dramatic drops in oil and gas prices as counter argument, think of it as hurricane “Terminator” as the eye passes overhead whispering “I’ll be back”.

The alternative energy economy is not another one of those theoretical no-show forecasts. It’s already here. Last year alone almost $150 billion of capital was pumped into renewable energy. Congress just passed a long awaited multi-year extension to the wind and solar tax credits. To date, these credits have been the essential catalysts that have stoked the early growth of renewable energy. And with all signs pointing to an Obama presidency, investments in renewables could accelerate in a big way. Time Magazine recently had the following to say about Obama’s plan in relation to our current economic problems:

He wants to launch an “Apollo project” to build a new alternative energy economy. His rationale for doing so includes some hard truths about the current economic mess: “The engine of economic growth for the past 20 years is not going to be there for the next 20. That was consumer spending. Basically, we turbocharged this economy based on cheap credit.” But the days of easy credit are over, Obama said, “because there is too much deleveraging taking place, too much debt.” A new economic turbocharger is going to have to be found, and “there is no better potential driver that pervades all aspects of our economy than a new energy economy … That’s going to be my No. 1 priority when I get into office.

So what exactly would an Apollo Project for energy look like? According to the Apollo Alliance, which Obama supports, a rigorous program channeling $500 billion over 10 years to alternative energy projects is needed. That money would be dedicated to:

• Generate clean power (25% from renewable sources by 2025 vs. ~6% today)

• Improve energy conservation and efficiency

• Cut energy bills

• Improve US technological and industrial capabilities

• Create 5 million green-collar jobs

Nick Hodge at GreenChipStocks.com is very excited at the prospects and has lots to say on the subject on his website. Worth looking into if you’re looking for more background and specific investment recommendations.  Nick provides the alternative energy “clock” shown below. Never mind that it’s a counter and not a clock but you get the gist.

Numbers like those shown below are hard to grasp. So I did a quick calculation on the oil counter. Picture in your mind an average size swimming pool. Now imagine completely filling up 2 of those pools every single second of every minute of every day of every year…..with crude oil. Mind boggling.

Perhaps there is a silver lining to our current perfect storm of economic, climate and security woes. Except it’s green!

Something surprising is happening in California. There is a ballot initiative (Proposition 7) coming up for a vote in November that would mandate that 50% of the State’s electricity come from renewable sources (wind, solar, geothermal etc.) by 2025. That’s not the surprising part. What is surprising is the widespread opposition to Proposition 7 by the most unlikely players. When ardent environmental advocacy groups like the Environmental Defense Fund et. al. oppose pushing the green envelope, something unusual is going on. So I decided to look into it.

By way of a brief background, California already has a renewable portfolio standard mandating 20% renewable energy by 2010 (they’ve achieved somewhere near 12-14% currently). The Republican governor has upped the ante with a 33% goal by 2020; a goal still being studied for feasibility but generally well received. And now comes Proposition 7 kicking the target all the way up to 50% and suddenly there’s widespread opposition.

What gives? As someone who has previously built power plants in California, I’m always interested in the energy trends of this progressive bellwether state. So after a little digging around I arrived at the following conclusions on key elements of California’s Proposition 7.

• 50% Target – Good idea verdict: MAYBE, BUT TOO SOON TO TELL – If I was a State in the midst of assessing if 33% was a viable target and someone came along outside of the normal process and jammed me with a firm 50% mandate with little wiggle room, I’d be more than a little pissed and resistant. While 50% may ultimately prove workable, it’s too early to tell. California is only at 13% today, heading towards a 20% target, with 33% being evaluated. Why not get closer to 33% first and see how things look and then decide if ramping up to 50% makes sense? Fact is, California is already going where nobody has gone before. Let’s do it prudently.

• Rigid Cap On Price Paid – Good idea verdict: BAD IDEA: – Utilities would have to pay 10% above market price for the renewable energy. A key reason renewable energy needs mandates is that it usually costs more than power from fossil fuels like coal, oil and gas. To create a mandate and then arbitrarily cap the price is just plain dumb. This would thwart market-transforming technologies that may need a higher initial price – just like wind did until more recently. Conversely, to pay 10% above market to all comers when you don’t have to is just wrong. Better to create tiered pricing based on technology type with room for adjustment based on the specifics. Less expensive technology like wind power would be paid less compared to solar which would be paid the more. It’s called “flexibility”.

• Would require 2/3rds legislative vote to unwind/modify – Good idea verdict: GOOD IDEA: – I know the arguments against this but I still give it a big thumbs up for one very important reason. The biggest impediment to the implementations of a government mandated programs are the fickle minded politicians that turn around and pull the rug out from underneath companies that have invested $ millions by changing the rules after the fact. That’s called “political risk” and political risk inhibits investment. So if something like Proposition 7 does pass, there should be a high hurdle to overturning it for political convenience. If it turns out to be a bad enough program, then the 2/3rds vote will be found. If not, leave it alone and live with it.

• Would cap rate increase to consumers at 3% – Good idea verdict: REALLY BAD IDEA: – This is the same regulatory design flaw that drove California utilities into bankruptcy earlier this decade. In that instance, a badly designed deregulation plan prohibited the California utilities from raising consumer retail prices when their wholesale costs to purchase power from the market went up. The notion that you can insulate consumers from the true costs of a government mandate – especially one that the voters themselves explicitly vote for in the case of Proposition 7 – is deceptive and insulting to the voter. Worst idea yet.

• Fast-tracking plant permitting process – Good idea verdict: MAYBE: – California has a permitting process that can keep project developers in the review barrel for years on end. It’s called the CEQA (California Environmental Quality Act) process and I’ve been on the receiving end of this so I know of what I speak. In my view, it’s a bloated review process that needs to be put on a diet. But Proposition 7 bypasses the CEQA process entirely and that sacrifices the State’s prerogative of environmental review on the altar of green energy. Not so fast. And there’s no doubt the environmental community views this as an unacceptable threat to 25 years of progress – hence the strange bedfellows opposing Proposition 7.

• Changing the regulatory oversight horse – Good idea verdict: BAD IDEA: – Proponents want to take control of this program away from the Public Utilities Commission and hand it to the California Energy Commission. Without getting into a long analysis of these two public agencies, proposing such a change would be highly disruptive at best. Moreover, this is an example of overreaching and adding complexity to an otherwise simple notion of increasing a renewable energy goal. There are additional elements proposed as part of this that further compound the sins but these are not worth getting into. Turning the State’s energy regulatory agencies on their heads as part of this proposition is simply a bad idea on the face of it.

• Uses penalty revenues to put that State into the business of buying land and building/owning transmission assets – Good idea verdict: INCREDIBLY BAD IDEA: – This feature is breathtakingly ill conceived. The very last thing we need is getting the State into the business of owning and operating power generation assets. Enough said.

• Minimum 20 year term on power purchase contracts – Good idea verdict: A VERY GOOD IDEA: – It’s well understood by developers and the banking and investment community that finances these energy projects that long term contracts are essential to making it happen. Without bogging down in financing minutiae, a 20 year contract significantly increases the probability that this mandate will bear fruit, and, at the lowest possible costs all around. All too often government agencies just don’t get this because it’s complex and they think they’re giving something away when they’re not.

• Plan has real teeth than imposes penalties for non-compliance by utilities – Good idea verdict: ANOTHER VERY GOOD IDEA: – Let’s stop playing around. What good are mandates if there’s no substantive downside for noncompliance. This is a brand of common sense that seems to elude politics as usual. It’s also the kind of common sense that will likely appeal to the average voter considering Proposition 7. Damn good idea! Which is probably why this is showing up in a proposition and not through the legislative process.

• Confusing authority over projects 30 Megawatts or larger in size – Good idea verdict: REALLY BAD IDEA: – It appears that most (but not all) projects 30 MW or larger would be under the auspices of Proposition 7 law and that all projects under 30 MW would fall under other existing authorities or programs. Confused yet? Really bad idea.

So while there are bright spots, taken as a whole, Proposition 7 is an ill conceived overreaching plan.  No wonder there’s such widespread opposition. One can only hope that the public doesn’t allow its enthusiasm for renewable energy to blind them to bad policy. When otherwise pro-green advocacy groups align themselves with the usual naysayers to oppose a green mandate, you just know it’s time to say no. Say no to Proposition 7.