The Only Thing Worse than Cancer is More Cancer

Electric Energy Economics are Absurd

Mutual Exclusivity: Two things that cannot exist at the same time. Choose one: (a) Wind + Solar; or (b) nuclear power. Uranium is so cheap that we don’t save anything by curtailing nuclear power when the wind blows or the sun shines.

The Current State of U.S. Independent Power Producers: a Chat with Two Ratings Analysts

Independent Power Producers (IPP), also known as merchant producers, are a very important part of the US grid. These are companies that own and operate power generation resources that are independent of regulated rate base. These plants are owned by fully at-risk capital; their only revenue is from competitive market sales. When it comes to markets, competition is generally good.

The problem is that IPPs wanting to sell or build more dispatchable, firm resources (new Uber drivers) have to compete economically with Floober (the random mobility service). This means that current IPP plants are suffering economically and, more important, new plants cannot be financed. All we are seeing is out-of-control, unplanned, uncoordinated growth of wind and solar—like a tumor.

Listen while the economic analysts explain:

“S&P Global Ratings’ senior director of ratings Aneesh Prabhu and several colleagues, including analyst Michael Ferguson, looked at the current state of the [Independent Power Producers], as they are known.” Full Article Link

Kingston: "The growth in renewables is misleading when you look at the numbers. Renewables as a percentage of total power generation has not risen by a huge amount, but at times, it can provide an enormous percentage of power to a specific grid. What sort of problems is that causing for the IPP industry, which is designed to produce non-intermittent power, as opposed to the intermittent feature of renewables?"

Prabhu: “Renewables have become very disruptive. You have a lot of wind generation at night which affects baseload generation. You then get negative pricing in the market, where the price of power is literally less than zero. But a baseload generator, like a merchant power plant, is often not capable of ramping down. By definition they are providing baseload power so they should be running flat out.”

Negative Pricing - Negative Value. It sounds good for consumers but it’s not. It means that the Floober Service is flooding the market with so many unnecessary, random rides that Uber has to pay its standby drivers for nothing. While they wait for the wind to die down.

Ferguson: “The way we look at this for conventional generators is it’s not gross demand that matters, it’s net demand. Renewables eat into that. Because renewables will generate when the wind or solar resource is present, they are seen as baseload. So demand is calculated net of renewable generation, in other words, requirements for other sources is after factoring what renewables are providing. We consider renewables to be something that eats into demand. Something like wind operates against a production tax credit that subsidizes its operation, so the bidding economics for putting power into the market are different than they are for a conventional generator. That very much affects IPP economic.”

Something that “eats into demand”—sounds like a tumor to me. Because the Uber drivers still need to hang around for the weather to change, who pays them to be on standby? What are we really saving? But wait, the tumor gets steroids:

Prabhu: “The production tax credit for wind is about $23/Mwh, and the wind unit has to produce in order to get the production tax credit. If the market signal is a negative $10/Mwh price, it will still generate because it gets the $23 credit. So technically, it can produce all the way down to negative 23. It’s another aspect contributing to the distorted market.”

Here’s my Punchline: Wind & Solar (Floober) produce garbage power that rot away the fundamental economics of the dispatchable resources (Uber) the grid needs. Like a tumor. And result in a market where nobody can plan new dispatchable plants.

A 2.54 cm ball of uranium weighs 1 pound (0.45 Kg). Today's spot price is $48.

Utilizing fast-spectrum technology, that's enough fuel to power 100 years of the average North American's power-hungry life. (h/t @science_church)

Mutual Exclusivity - Cheap Fuel

This means that when the wind is blowing and the sun is shining, and grid operators and power buyers and sellers are over-supplied, nuclear power plants do not save any money on fuel. That’s why wind and solar are mutually-exclusive.

Ferguson: “These conditions particularly affect nuclear. You can’t just shut them down when power prices are low. They have massive fixed cost structures and they have power prices that are $10-$15/Mwh too low for them to make a profit. That ends up prompting a political argument, because these nuclear plants employ so many people. A typical nuclear plant might have 1,200 to 1,400 people working at a site. So NY and IL are already, and potentially PA, OH and NJ, talking about putting subsidies in place. To these local communities this is a significant component to their tax base, and if they’re closed, this is often tantamount to shutting these towns’ economies.”

In my mind, as bad as cancer is, more cancer is worse. Why are we subsidizing cancer? Why are we eating away the fundamental economics of reliable generators? We should be subsidizing reliable generators so they can operate as efficiently as possible. Chasing load makes them terribly inefficient. This is Absurd.

Imagine yourself an independent power producer trying to put together a much needed dual combined cycle natural gas plant. You've got to sell power to get financing. But your buyers want you to curtail when the wind blows. How do you finance your new plant?

Imagine yourself an independent power producer trying to put together a much-needed nuclear power plant. You've got to sell power to get financing. But your energy buyers want you to curtail when the wind blows. How do you finance your new plant?

For more reading on this topic, I recommend Shorting the Grid:

For a more detailed discussion of the topics addressed here, please consider:

Chaos Theory, Meet the Grid