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Austin Energy pushes back against renewable energy goals

Friday, Aug. 1, 2014

By Lilly Rockwell
Austin American-Statesman

Austin Energy is fearful of one thing: becoming the next Germany.

The European country set an ambitious goal in 2010 of producing 80 percent of its electricity from renewable sources, such as wind and solar, by 2050. German rooftops were blanketed with solar panels. Germany built solar and wind farms. And it decided to shut down its nuclear plants by 2025, motivated in part by concerns about nuclear safety.

Austin Energy use source chart

But Germany’s quick embrace of renewable energy has been disastrous for the country, causing utility rates to skyrocket and still leaving a reliance on carbon-producing gas and coal plants during high-demand times. The Daily Telegraph reported that Germany released more carbon dioxide into the atmosphere in 2012 than in 2011.

"They have a new term — energy poverty," said Khalil Shalabi, the vice president of energy market operations and resource planning for Austin Energy. "Forget rent, they can’t pay their electric bill."

Austin Energy officials worry about becoming the next cautionary tale of energy policy as the Austin City Council is poised to consider a new plan for ramping up how much of the utility’s power generation comes from green energy. A report by a city-appointed task force issued this week called for a Germany-style goal of going carbon-free by 2030.

The report by the Generation Resource Planning task force also calls for a heavier reliance on solar energy, to shut down the natural gas-powered Decker Power Plant by 2016, and to change the ownership of the city’s share in the Fayette coal-fired power plant to make it easier to sell or shut down.

Though the recommendations haven’t been formally presented to the council yet, Austin Energy has already begun a campaign against the report. The utility pushed back against many of its conclusions, saying too much renewable energy too quickly can be prohibitively costly for ratepayers.

The City Council had previously set a goal of generating 35 percent of the utility’s energy from renewable sources by 2020. But Austin Energy is on track to reach that goal early in 2016. So the City Council set a new goal of becoming carbon-free by 2050, and it created a task force to study what the utility’s renewable goals should be.

But the utility hopes to persuade the council to back off the hard deadlines, and it is presenting its own plan in September for future power generation.

"It’s important what Austin Energy thinks," said Michael Osborne, the chair of the Generation Resource Planning Task Force and a former Austin Energy executive. "But it’s the City Council that sets the policy."

And the City Council is facing pressure from renewable energy advocates and environmentalists to reduce the utility’s dependence on its coal, gas and even nuclear-powered plants, which make up 79 percent of the utility’s power generation.

"When we have acted in the past as first-movers, with the biomass plant and Webberville solar plant, we are locked into long-term contracts at above-market cost, and it’s not entirely clear what the value of those investments was," said Mark Dreyfus, the director of regulatory and government affairs at Austin Energy.

The Webberville solar farm, just east of Austin, was approved in 2009, and it costs the utility 16.5 cents-per-kilowatt-hour, versus a new solar energy contract the utility just inked for around 5 cents-per-kilowatt hour.

Proponents of renewable energy, however, are deeply skeptical of Austin Energy’s conclusions.

Task force members interviewed by the Statesman said they don’t buy Austin Energy’s argument that investing heavily in renewable energy would be more expensive than so-called "brown" energy sources like coal or natural gas.

Osborne said information provided by Austin Energy about the cost of its gas generation shows it is nearly twice as much per megawatt-hour as solar energy.

"Any fool can see looking at these numbers provided by Austin Energy that (renewable) is cheaper than gas or coal for energy in the future," said Tom "Smitty" Smith, the state director of watchdog group Public Citizen.

Smith said the utility isn’t making price comparisons based on the future cost of renewables and brown power.

"The thing that Austin Energy is ignoring, and that City Council has directed them to do, is to take every step they can to reduce their carbon emissions because of the greater risk to our community of global warming," Smith said. "It’s time for Austin Energy to grow up and act responsible for their emissions."


Coming Monday: Earlier this year, Austin Energy overhauled its GreenChoice program that allows customers to pay a different price to support wind energy. But the changes have drawn criticism from renewable energy supporters.

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This document contains copyrighted material whose use has not been specifically authorized by the copyright owner. SEED Coalition is making this article available in our efforts to advance understanding of ecological sustainability, human rights, economic democracy and social justice issues. We believe that this constitutes a "fair use" of the copyrighted material as provided for in section 107 of the US Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond "fair use", you must obtain permission from the copyright owner.

Citigroup Says the ‘Age of Renewables’ Has Begun

April 1, 2014

By Giles Parkinson
RenewEconomy

Investment bank Citi says solar and wind are competing on costs with fossil fuels in the U.S.

Investment banking giant Citigroup has hailed the start of the "age of renewables" in the United States, the world’s biggest electricity market, saying that solar and wind energy are becoming competitive with natural gas peaking and baseload plants.

In a major new analysis released last week, Citi says the big decision-makers within the U.S. power industry are focused on securing low-cost power, fuel diversity and stable cash flows, and this is drawing them to the increasingly attractive economics of solar and wind.

Citi’s report notes that gas prices are rising and becoming more volatile. This has made wind, solar and other renewable energy sources more attractive because they are not sensitive to fuel price volatility.

Citi says solar is already becoming more attractive than gas-fired peaking plants, both from a cost perspective and a fuel diversity perspective. And in baseload generation, wind, biomass, geothermal, and hydro are becoming more economically attractive than baseload gas.

The report notes that nuclear and coal are structurally disadvantaged because both technologies are viewed as uncompetitive on cost. Environmental regulations are making coal even pricier, and the aging nuclear fleet in the U.S. is facing plant shutdowns due to the challenging economics.

"We predict that solar, wind, and biomass continue to gain market share from coal and nuclear into the future," the Citi analysts write.

Citi says the key metric in comparing power sources will be the levelized cost of energy (LCOE). "As solar, wind, biomass, and other power sources gain market share from coal, nukes, and gas, the LCOE metric increasingly becomes important to the new build power generation decision-making," it says.

Citi defines LCOE as the average cost of producing a unit of electricity over the lifetime of the generating source. It takes into account the amount produced by the source, the costs that went into establishing the source over its lifetime, including the original capital expenditure, ongoing maintenance costs, the cost of fuel and any carbon costs. It also includes financing costs and ensuring that the project generates a reasonable internal rate of return (IRR) for the equity providers.

Below is the key graph on the current state of play, with baseload generation and its renewable competitors to the left, and peaking gas and solar to the right.

On baseload, all renewables except marine beat coal and nuclear. Combined cycle gas just hangs on.

As for peaking plants, it depends on the gas prices, but these are rising, and in some regions, prices are now back above their pre-GFC and fracking boom levels. The move to export LNG will likely cause a further increase in prices.

The following charts provide more details on those gas prices. As can be seen, natural gas prices have nearly doubled in the past two years, and these have a direct correlation to the price of gas-fired electricity.

At a natural gas price of $4.00/mmbtu, the LCOE of a gas peaker is $0.10/kWh and that of a CCGT (combined cycle or baseload plant) is $0.06/kWh. If Citi’s commodities team’s long-term gas price forecast of $5.50 is used, the implied LCOE is $0.12/kWh for natural gas peaker or $0.07/kWh for a CCGT plant.

"These numbers," Citi says, "set the bar for alternative energy."

"Given the large expected increase in demand for gas, offset by production gains, gas prices are expected to rise over the long term. As a result, the bar for renewables and other fuel sources to cross continues to rise, thus making it easier for alternatives to gain market share."

Financiers in particular are conscious about the volatility in U.S. gas prices and the likelihood that they will rise. These factors are influencing where they are putting their money, and new YieldCo financing facilities for solar and wind energy are making these technologies both cheaper and more attractive.

As for solar, costs are coming down. Citi says the base-case LCOE for solar is 13 cents/kWh, the near-term upside is 11 cents/kWh and the long-term upside (2016) is 10 cents/kWh. (This is despite the fact that some power purchase contracts are being written as low as 4 cents/kWh or 5 cents/kWh, but those figures are helped by various tax rebates.)

Citi says the outlook for solar LCOE is favorable, but the devil lies in the details. System costs comprise module costs plus balance-of-systems costs, and these vary based on end user, location, and other factors. As the table above shows, BOS costs are likely to fall sharply in the near term.

With a lower cost of capital, solar becomes much less expensive to finance and develop. In general, the growing financing market for solar has begun to recognize the strong cash flow and low risk profile that characterize solar projects.

"Solar is still early in the growth cycle, and in many countries — Germany, Spain, Portugal, Australia, and the Southwest U.S. — residential-scale solar has already competed with average residential electricity prices," Citi writes. "In 2013, solar was the second-largest source of new generation capacity behind natural gas — its prospects look bright in 2014 and beyond as costs continue to decline and improve the LCOE picture."

As for wind, it continues to reduce costs, but the most interesting development is the reduction in financing costs, thanks again to the YieldCo phenomenon.

"While LCOE may decline, the outlook for wind is also dependent on the wind levels in the areas it will be built and the cost of baseload alternatives. With gas prices forecasted to rise, the LCOE of wind is becoming more competitive with CCGT alternatives. Despite this, many of the most attractive wind sites are [already] in use and government incentives come into play, which reduces the outlook for wind," according to the report.

Citi, however, is not as optimistic about hydro, geothermal, and marine energy sources because of physical limitations. "While hydro and geothermal are competitive from an LCOE basis, they require unique geological conditions and as a result, many of the remaining potential new sites have less attractive LCOEs," the report notes. Marine technologies appear to still be early in their development cycles with an uncertain roadmap.

Coal, it says, is basically priced out of the market. Environmental regulations mean that the LCOE for new coal is around 15.6 cents/kWh, and the report notes that coal only accounts for 2 percent of the generation projects under development.

On nuclear, Citi says cost overruns at the Vogtle plant under construction in Georgia — now slated to cost $15 billion, way above expectations — mean that nuclear is pricing itself out of the market. Citi puts nuclear’s LCOE at 11 cents/kWh, which it said is relatively expensive, versus combined cycle gas plants and solar and wind. And it notes that while financing costs are inexpensive in the current monetary environment, this situation will not last.

"Financing costs are likely to rise, which would hurt the LCOE attractiveness of a high-construction-cost generating source like nuclear," Citi says. "As a result, we do not expect nuclear to effectively compete on economic merits. Despite this LCOE dynamic, there is merit to increasing fuel diversity and supporting lower carbon generation."

***

Editor’s note: This article is reposted from RenewEconomy. Author credit goes to Giles Parkinson.

Fair Use Notice
This document contains copyrighted material whose use has not been specifically authorized by the copyright owner. SEED Coalition is making this article available in our efforts to advance understanding of ecological sustainability, human rights, economic democracy and social justice issues. We believe that this constitutes a "fair use" of the copyrighted material as provided for in section 107 of the US Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond "fair use", you must obtain permission from the copyright owner.

Council vote on legal fees could rile AE ratepayers outside city limits

September 11, 2013

By Mike Kanin
In Fact Daily

Austin could be headed for another fight with Austin Energy ratepayers who live outside city limits.

Council members voted Tuesday to affix about $1.56 million in legal fees associated with the city’s defense of the recent Austin Energy PUC rate case to the bills of utility ratepayers who live outside city limits. The cost, spread out over two years, will run each ratepayer nearly 60 cents per 1,000 kilowatt hours used a month.

The move came on a motion from Council Member Chris Riley as he and his colleagues finished off their work on the City of Austin’s FY2014 budget. It was approved on a 6-1 vote. Mayor Lee Leffingwell represented the sole "no."

"What makes this different for me is that this was not a case settled by the (Public Utility Commission), it was a negotiated settlement," Leffingwell told his colleagues. "It seems to me that a negotiation in good faith would have included this as part of negotiations."

Legal counsel for Homeowners United for Rate Fairness — the group that challenged Austin Energy’s rate increase last year — called the development "extremely disturbing."

"This is a violation of our settlement with the Public Utility Commission," said Roger Borgelt.

Borgelt pointed to the settlement agreement between the city and the challenging parties. However, that agreement does not appear to clarify the situation. Rather, it says that "the Signatories agree that the Commission has no jurisdiction to consider the rate case expenses incurred by AE after the Council’s adoption of the June 7th Ordinance."

City legal counsel supported Riley’s motion. "That is a legally defensible position," said attorney Thomas Brocato of Lloyd Gosselink . "Historically, rate case expenses are collected from all ratepayers over which the (Public Utility Commission) has jurisdiction."

Brocato noted that ratepayers could challenge Council action. After the hearing, Riley, also an attorney, did not appear worried about such an eventuality. He told In Fact Daily that his intent was not to invite another challenge.

"The intent was to be consistent with how these cases are typically handled," he said. "What we’ve learned from staff is that, typically, the expenses associated with rate cases are charged to those customers over whom the (Public Utility Commission) has jurisdiction."

Austin Energy retained outside legal counsel after a 2012 rate hike was challenged by the same out-of-city ratepayers who will now be assessed an added fee on their bills. The case landed at the state’s Public Utility Commission.

Before a ruling — but not before pages of scathing testimony from PUC staff particularly critical of the city’s practice of collecting Austin Energy money for matters not related to the utility —Council vote on legal fees could rile AE ratepayers outside city limits
In Fact Daily 9/11/13

the city reached a settlement with ratepayers. In so doing, the city avoided what could have been a costly hearing that threatened to change the way that the utility does business.

There have also been legislative threats. The utility routinely dodges state attempts at deregulation and 2012 was no different.

Fair Use Notice
This document contains copyrighted material whose use has not been specifically authorized by the copyright owner. SEED Coalition is making this article available in our efforts to advance understanding of ecological sustainability, human rights, economic democracy and social justice issues. We believe that this constitutes a "fair use" of the copyrighted material as provided for in section 107 of the US Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond "fair use", you must obtain permission from the copyright owner.
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