Power Contract Prices for Solar, Wind Continue to Rise

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By Christian Roselund

Power purchase agreement (PPA) prices for solar and wind continued to rise across the United States during the third quarter of 2022, according to the latest report by LevelTen Energy. The market trading company’s market-averaged national index for solar has now increased 30.03% year-over-year to $42.21 per megawatt-hour (MWh), while its wind index increased 37.4% to $49.66/MWh. These price increases come despite the promise of the Inflation Reduction Act (IRA) to lower prices, an effect that LevelTen says has yet to manifest.

As was seen in previous editions of its PPA Price Index, the prices for solar and wind vary greatly by geography. While solar prices have decreased in New York in recent quarters, the roughly $70 per megawatt-hour price is still roughly double what renewable energy buyers are paying for solar in Texas. And prices for solar have increased during the past few quarters in the grids that cover Texas, most of the Midwest and parts of the East Coast.

Wind prices similarly vary widely by geography, with a roughly $69/MWh average price in California more than double the price in the Midwest and Plains States. These prices have increased in nearly every region from Q2 to Q3, with California, parts of the Midwest, and Texas showing the
sharpest increases.

For both wind and solar, LevelTen attributes these price increases to a combination of inflation, permitting issues, interconnection delays and transmission constraints. The company does not expect near- to mid-term price declines.

One issue identified by LevelTen is a lack of clarity around the details of how to qualify for higher incentive levels through the domestic content bonuses and other bonuses under the Investment Tax Credit (ITC) and Production Tax Credit (PTC). The company notes that developers are still waiting for clear guidance from the Treasury Department to be able to revise contract prices to reflect
the IRA. 

Source: LevelTen PPA Price Index (LevelTen Energy)

FERC Warns of Higher Winter Energy Prices, Potential Supply Disruptions

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By Christian Roselund

The Federal Energy Regulatory Commission (FERC) has joined the chorus of voices warning of higher energy prices and even potential supply disruptions as winter approaches. In its Winter Energy Market and Reliability Assessment 2022 – 2023, FERC states that average natural gas futures prices for the winter of 2022 – 2023 have risen 30% year-over-year to $6.82 per million British thermal units (MMBtu). Prices in New England are more than 3x the national average at $23.57/MMBtu. The agency has also warned of possible capacity shortfalls in the event of extreme winter weather for New England, Texas, and parts of the Midwest.

An irony to this report is that higher than average temperatures are expected for the coming winter months, which should lead to reduced electric and gas demand. However, FERC warns that “prolonged cold weather events nevertheless could cause disruptions and price impacts, even within the context of a warmer winter.”

Another irony to the warnings being given about lack of gas supply is that domestic production of natural gas is at an all-time high, with average winter production of 2.81 billion cubic meters per day. This is a nearly 20% increase from the winter of 2017-2018, with production increasing every winter except the winter of 2020-2021. However, demand for gas is also at an all-time high, driven by both domestic consumption and America’s transformation into the world’s largest exporter of liquefied natural gas (LNG). FERC cites forecasts that indicate that net gas exports will increase 24% this winter to nearly 379 million cubic meters per day.

The United States’ move to becoming the world’s largest natural gas exporter means that international markets are affecting U.S. gas prices and markets. In New England, which is more dependent upon natural gas from outside the region for both heating and electricity than other parts of the United States, pipeline capacity constraints further drive up prices. New England is also unlike other U.S. regions in that it imports a small portion of LNG in the winter.

FERC’s concerns extend beyond high prices. The agency has also issued warnings about potential electricity capacity shortfalls in three regions. New England again tops the list. FERC states that the region could face challenges during an “extreme winter event,” noting that the firm nature of gas contracts for heating and limited pipeline capacity could leave power plants with short supplies. For such an event, FERC expects the region to rely on emergency purchases of power from outside the region and operational actions which could include requesting curtailment from large industrial and commercial users.

FERC has issued similar warnings for the Electric Reliability Council of Texas (ERCOT) grid. While FERC notes that ERCOT has made progress in adding generation and in adapting operational measures to lessons learned during the deadly Winter Storm Uri in 2020, that operational measures including emergency alerts could be needed under extreme conditions.

Source: Winter Energy Market and Reliability Assessment 2022-2023 (FERC)

Federal Government to Hold West Coast Offshore Wind Lease Sale

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By Christian Roselund

The U.S. Bureau of Ocean Energy Management (BOEM) will hold an offshore wind energy lease sale on 6 December 2022 for areas on the Outer Continental Shelf (OCS) off central and northern California. This will be the first wind lease sale on the West Coast, following 10 similar sales on the East Coast from New England to North Carolina which resulted in the award of 27 leases.

Source: U.S. Department of the Interior

In the Pacific Ocean, BOEM will offer five lease areas that total 1,511 square kilometers, two of which are located off the coast of Northern California near the Oregon border, and three of which are off the Central Coast roughly halfway between San Francisco and Los Angeles. The agency estimates that these have the potential to host 4.5 gigawatts of offshore wind capacity.

This will be the first sale where developers plan to deploy floating offshore wind platforms, which are more suited to the deeper waters off the Pacific Coast than the fixed foundations that dominate East Coast offshore wind. The sale follows on a new goal by the Biden Administration to deploy 15 gigawatts of floating offshore wind
by 2035.

But while the Biden Administration had awarded leases to host 35.5 gigawatts of offshore wind as of August 2022, the nation has only begun to build its first large projects and at present only 42 megawatts of offshore wind is online. According to a 25 October 2022 article Avangrid and Copenhagen Infrastructure Partners are preparing to start laying the underwater cable to the 800-megawatt Vineyard Wind project off the coast of Massachusetts, the first large offshore wind project to reach this phase in the United States.

Source: Biden-Harris Administration Announces First-Ever Offshore Wind Lease Sale in the Pacific (U.S. Department of the Interior)

News Roundup

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RWE to Buy ConEd’s Renewable Energy Businesses

U.S. power company Consolidated Edison (ConEdison) has agreed to sell its three renewable energy subsidiaries, including more than 4 gigawatts of renewable energy projects, to Germany’s RWE AG for $6.8 million. The sale of Con Edison Clean Energy Businesses Inc. is subject to conditions including approval by federal regulators and is expected to close in the first half of 2023.

When the deal closes, it will increase RWE’s U.S. renewable energy portfolio to 7.2 gigawatts of online generation assets and grow its U.S. onshore wind, solar, and battery pipeline to more than 24 gigawatts. RWE has noted this will lead to a more geographic balance in its portfolio and make it the second-largest operator of solar plants in the United States. RWE will also gain roughly 500 workers in the acquisition.

Source: Con Edison Announces Agreement to Sell Renewable Energy Subsidiaries (ConEdison)

Source: RWE agrees to acquire Con Edison Clean Energy Businesses, Inc. and to become one of the top leading renewable energy companies in the United States (RWE)

GE to Lay Off 20% of Onshore Wind Workforce

Citing anonymous employees, reports by Reuters and CNBC state that General Electric (GE) is laying off 20% of the workers in its onshore wind division, totaling hundreds of workers. These employees state that the layoffs are taking place in North America, Latin America, the Middle East and Africa. GE has not confirmed the layoffs but has stated that it is “streamlining” its onshore
wind business.

Sources cited by these publications state that GE is dealing with weak demand, rising costs, and supply-chain challenges. In aggregate, GE’s renewable energy businesses employed 38,000 workers globally at the end of 2021. The conglomerate has plans to spin off its entire energy business, including these renewable energy businesses, as a separate company in 2024.

News coverage: Exclusive: GE lays off workers at onshore wind unit as part of turnaround strategy (Reuters)

News coverage: GE is laying off 20% of its U.S. workforce devoted to onshore wind power, costing hundreds of jobs (CNBC)

Guggenheim: Solar, Wind Generation Much Lower Cost than Natural Gas

U.S. electricity generation from solar is an average 33% lower-cost than natural gas-fired electricity generation, and wind is 44%lower, according to a note by Guggenheim securities cited by Bloomberg. An analyst note cited by the publication states that solar and wing represent “a deflationary opportunity for electricity supply costs” which “supports the case for economic deployment of renewables across the US.”

News coverage: Solar Is Now 33% Cheaper Than Gas Power in US, Guggenheim Says (Bloomberg)

U.S. Retail Electricity Prices to Rise in 2022, 2023

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By Christian Roselund

The latest short-term outlook from the U.S. Department of Energy (DOE) estimates that electricity prices are rising in 2022, driven by higher natural gas prices, and will rise again in 2023. A second  report published by DOE on winter fuels shows that prices for the fossil fuels burned in homes are rising even faster.

DOE forecasts an average 48% increase in the cost of gas-fired generation in 2022, which sets the clearing price in wholesale markets across much of the United States. However, as retail electricity prices reflect both wholesale power purchases and the transmission and distribution infrastructure needed to deliver power, consumers will not see this increase directly. DOE expects the average retail price of electricity in the United States will rise only 8% over the full year 2022 to $0.1486/kWh. However, it expects higher prices in New England due to the limited availability of fossil fuel supply.

Consumers who rely directly on fossil fuels will pay more. DOE is predicting a 27% increase in expenditures for heating oil and a 28% increase in payments for natural gas in the winter of 2022-2023 versus last winter (2021-2022). This will be the second winter of price increases for these commodities. 46% of US households are heated by natural gas, versus 41% by electricity and only 4% by heating oil. However, heating oil is the most prevalent form of home heating fuel in four states in New England.

While these prices are a fraction of what is being paid in Europe, rising energy prices put economic pressure on low-income families and political pressure on the party in power in the U.S. government. On 8 November, 2022, Americans will vote in federal elections and the opposition Republican Party is seeking to blame the Democratic Party, which holds majorities in both houses of Congress and the presidency, for high energy prices.

Source: Short-Term Energy Outlook (Energy Information Administration, DOE)

Source: Winter Fuels Outlook (Energy Information Administration, DOE)

Sunrun Supplies Capacity in New England Using Virtual Power Plant

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By Christian Roselund

Residential solar provider Sunrun has completed its first season operating a virtual power plant (VPP) comprised of rooftop solar and energy storage systems to supply capacity to New England’s wholesale electricity market. From June through August, an estimated 5,000 home solar and battery systems operated by Sunrun in New Hampshire, Massachusetts, Rhode Island, and Vermont exported 1.8 gigawatt-hours of electricity back to the grid.

The contributions of small-scale solar to meet grid needs are further supported by an analysis by the region’s grid operator which shows that rooftop solar reduced peak demand on New England’s grid during the hottest days of the summer during the week of July 19 through July 25. During mid-day solar contributed as much as 4 gigawatts of capacity; during the system peak demand was reduced by 1.5 gigawatts or more. This allowed the New England Independent System Operator (ISO-NE) to keep system demand below the average forecast through a heatwave in July when the region-wide heat index rose above 38C.

The contribution of solar to meeting system load on the ISO New England grid during 19-24 July 2022.
Credit: ISO New England.

Sunrun’s VPP aggregated an estimated 5,000 small-scale solar and battery systems across four New England states. E&E News notes that this follows on Tesla operating a solar and battery VPP in Texas’ wholesale market; however, Sunrun’s contract in New England is the first time this has been done in a multi-state wholesale market. As the “duck curve” effect imposed by solar pushes the peak need for electricity generation from the rest of the system into the evening, it will be essential to add more batteries to the mix. Adding batteries can also reduce the use of the petroleum-fired power plants which are turned on during evening peak demand in New England. These plants disproportionately increases emissions of both CO2 and airborne toxins.

There are still regulatory barriers to solar and battery VPP participating in other wholesale markets. To address these and other issues, in 2020 the Federal Energy Regulatory Commission issued FERC order 2222. This rule requires grid operators to allow full participation of distributed energy resources. However, many U.S. grid operators have not yet filed plans to comply with this order.

News coverage: Northeast embraces first-of-a-kind virtual power plant (E&E News)

Press release: Sunrun Activates Nation’s First Residential Virtual Power Plant in Wholesale Market (Sunrun)

Los Angeles Proposes Switch to Hydrogen at Four Gas-Fired Plants

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By Christian Roselund

The United States’ second-largest public utility is considering switching four of its natural gas plants to hydrogen as it moves towards 100% renewable energy. In the latest version of its Strategic Long-Term Resource Plan, the Los Angeles Department of Water and Power (LADWP) has proposed retrofits to the four plants in the Long Angeles Basin to run on green hydrogen as a backup
power source.

The four plants in consideration – Harbor, Haynes, Scattergood and Valley – are a mixture of combined cycle and combustion turbines. The first three use cooling water from the Pacific Ocean and were slated to be shut down from 2024 through 2029, but LADWP has proposed to convert them to burn hydrogen instead.

The move is part of LADWP’s plan to comply with the city’s mandate to move to 100% zero-carbon electricity by 2035. This plan also includes building more power lines and purchasing power from wind and solar plants outside the Los Angeles Basin, as well as incentivizing rooftop solar and demand response and installing 333 megawatts of lithium-ion batteries within the Los
Angeles Basin.

LADWP has consistently noted that in addition to wind, solar, storage, and demand response, all of its scenarios include a requirement for firm, dispatchable power such as these hydrogen-powered plants would provide. In a presentation, the utility clarified that it intends to use these plants as backup power in the event of grid challenges, and cited the dangers posed by the loss of transmission lines bringing electricity into the basin during recent wildfires as a reason for the need for local power.

These will not be LADWP’s first experiences with hydrogen projects. The utility is planning to buy power from the Advanced Clean Energy Storage (ACES) project in Utah, which is on track to be one of the first utility-scale hydrogen-burning power plants in the United States. ACES has been approved for a $504 million loan guarantee through the U.S. Department of Energy, and project partners Mitsubishi Power Americas and Magnum Development plan to use on-site wind and solar to produce and store the hydrogen that the plant will burn.

S&P Global notes that Food and Water Watch has opposed the plans to convert gas-fired plants in the Los Angeles Basin to hydrogen, citing local air quality concerns.

News coverage: Los Angeles firms up plans for green hydrogen as backup power source (S&P Global)

Controversial Southeast Energy Market to Launch in November

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By Christian Roselund

On 9 November 2022, 23 electric utilities in the U.S. South will launch an electricity trading program limited to utilities that are its members. A 12 October 2022 filing with federal regulators has confirmed this date for the launch of the Southeast Energy Exchange Market (SEEM), even as legal challenges and questions about whether this violates the principle of open access remain.

SEEM has been building momentum since November 2021, when federal regulators approved transmission rules for the market. Since then the proposal has grown from 15 to 23 utilities, with several Florida utilities joining in the Fall of 2022.

SEEM would cover the service areas of these utilities, stretching from Kentucky to Florida and the Atlantic Ocean to Mississippi. Along with the Mountain West and Pacific Northwest, this is one of the last regions where both wholesale and retail electricity supply is still the domain of vertically integrated monopoly utilities and where there is no regional grid operator to oversee a
wholesale market.

The utilities participating in SEEM argue it will increase reliability. They also assert that it will lower costs for consumers by allowing utilities to buy lower-cost electricity from more efficient generation to serve their customers, while enhancing the value of wind and solar, thus allowing more renewable energy to come online. This final point has been supported by Shahriar Pourreza, an analyst with Guggenheim Securities, in a note to clients.

However, clean energy groups argue that SEEM can be used by investor-owned utilities in an anti-competitive manner, particularly against independent generators. National trade group Advanced Energy Economy has joined Southern Alliance for Clean Energy and Natural Resources Defense Council in opposing the measure. These parties have filed a lawsuit to stop SEEM from going into effect and the Electricity Law Initiative at Harvard Law has joined in, filing a “friend of the court” brief stating that SEEM violates the principle of open access to transmission systems.

News coverage: Southeast market set to shake up renewables in 12 states (E&E News)

Virginia Energy Plan Calls for Scrapping Clean Energy Policies

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By Christian Roselund

Virginia Governor Glenn Youngkin has released a new energy plan for his state which advocates against multiple decarbonization measures, including the state’s clean energy mandates for electricity, its plans to transition to electric vehicles, and its participation in the Regional Greenhouse Gas Initiative. The 2022 Energy Plan also calls for deployment of the nation’s first small modular nuclear reactor, creation of greater retail choice for electricity consumers and more options for small-scale solar, re-evaluation of electric rate riders, and investment in thehydrogen economy.

Much of the text of the Energy Plan is dedicated to arguments against the 2020 Clean Economy Act, which set a mandate that utilities procure an increasing share of zero-carbon generation to reach 100% by 2050. The Plan calls for a re-evaluation of the Act in 2023 and every five years. The plan’s central critique of the Clean Economy Act is that to reach the plan’s goals, the state will have to shutter its natural gas generation, which it describes as baseload. This is an imprecise description, as across the United States gas plants are typically run as a combination of baseload, “mid-merit” (often operating, sometimes not) and “peaker” (operating during periods of limited power supply and/or very high demand) plants.

This inaccurate use of terminology in the plan is accompanied by a generous application of outdated energy concepts that have been used to argue against renewable energy. The plan appears to conflate the terms “baseload” and “dispatchable,” while arguing that the shift to wind and solar will result in reduced reliability. In doing so, the plan downplays the potential of batteries to deal with the intermittency of wind and solar and dismisses hydrogen-powered generation to provide dispatchable power as “unproven.”

Youngkin, a member of the Republican Party, was elected in 2021 and replaced Governor Terry McAuliffe, a Democrat. The Republican Party has generally been opposed to clean energy mandates and many Republican politicians openly deny the scientific consensus around man-made climate change. Governor Youngkin’s approach is different; he acknowledges that climate change is a threat to Virginia, but often opposes policies to mitigate emissions.

However, Youngkin’s plans to scrap the Clean Economy Act may end up as no more than hot air for the time being. Clean Economy Act is a state law and therefore changes to its requirements require approval by both houses of the Virginia Legislature. While the Virginia House has a Republican Majority, the Virginia Senate is currently controlled by the Democratic Party.

Source: 2022 Virginia Energy Plan (Virginia Department of Energy)

U.S. Labor Department Raises Alarm over Child Labor in Battery Minerals

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By Anjali Joshi

The U.S. Department of Labor (DOL) has added lithium-Ion batteries to a list of goods made of materials known to produce with forced labor or child labor under a 2006 human trafficking law. This addition was made in a list of goods produced using child labor and/or forced labor published on 28 September, 2022, and DOL focused on risks in the Democratic Republic of Congo (DRC), which accounts for over 70% of the global cobalt production. Many case studies have suggested in the past that mining activities in the DRC involve child labor. This report could be a prelude to trade action restricting battery and/or battery material imports, particularly cobalt or cells with cobalt
from China.

Many case studies have suggested in the past that mining activities in the DRC involve child labor. Child labor is mostly associated with small-scale, “artisanal” mines in the DRC as big mining companies use automated machines and equipment to mine cobalt. However, the DOL reports that cobalt from these artisanal mines is often co-mingled with cobalt produced by larger mining operations at the time of processing, which mostly takes place in China. The U.S. Department of Labor Report could be a prelude to trade action restricting battery and/or battery material imports, particularly cobalt or cells with cobalt from China.

The U.S. Department of Labor Report could be a prelude to trade action restricting battery and/or battery material imports, particularly cobalt or cells with cobalt from China. The Labor Department’s report states that “virtually all” lithium-ion batteries contain cobalt. This statement is incorrect as lithium ferrous phosphate (LFP), a type of lithium-Ion cell chemistry with no cobalt, represents 25-30% of global lithium-ion battery production. LFP is increasingly used for stationary storage applications in the United States. Additionally, to fulfil ESG conditions and produce cost-competitive EVs, several leading automakers like Tesla, Ford, and Toyota have decided to shift towards less cobalt/cobalt-free batteries for their low-range models. As such, the demand for LFP batteries have been increasing tremendously since mid-2021 across the EV sector. And as LFP batteries do not use cobalt, these batteries represent an option for U.S. customers with less trade policy risk.

Despite increasing use of LFP batteries for EVs, and declining share of cobalt content from ternary batteries, cobalt-based Li-Ion batteries still make up the majority of EVs sold in the global market. Even as the United States is focusing on creating a stable and secure Li-Ion battery supply chain, including through incentives for domestic battery material processing, domestic cobalt production would take time to materialize due to lengthy mine construction timelines.

However, if the government puts a ban on the imports of Li-Ion batteries due to child labor issues associated with cobalt mining, it is unlikely that the domestic EV industry would be impacted as domestic EV production is increasingly co-located with battery cell manufacturing. Imported batteries are mostly used for BESS applications and any future bans on lithium-ion imports are likely to affect the domestic battery energy storage sector.

Source: List of Goods Produced by Child Labor or Forced Labor (U.S. Department of Labor)