One criticism of wind and solar power is their lack of reliability. Both depend on the weather for energy production and any change in weather affects their ability to produce electricity. In many regions, wind has the added liability of producing power when it is least needed. To solve this challenge, some suggest pairing standby generators with wind and solar farms so continuous power can be produced. Under this scheme, proponents argue that standby generators should be capable of varying its output to assure continuous energy production.
Varying output is called load following or turn down. The physical objective is to throttle back power generation to response to changing demands. The financial objective is to turn down without increasing fuel consumption on a unit basis. The environmental objective is to minimize air pollution, specifically carbon.
But for most of America, building new gas turbines and paring them with solar and wind farms is a mistake. It is an unnecessary capital expense and it duplicates the value proposition offered by the power markets.
The pairing requires two generators in place of one. When the wind is blowing, the standby generator is idle. When the standby generator is operating, the wind plant is idle. The result is a net generating capacity that is idle 100-percent of the time. Financially, this is unworkable for most markets.
To maximize returns, power plants, including gas turbines, must optimize their capacity factors. This means investors seek to operate their plant continuously at full capacity. Anything short of 100-percent capacity factors result in lower earnings and lower returns on capital.
Of course, nobody can achieve 100-percent all of the time. The Nuclear Energy Institute reports that US-based nuclear power plants are the industry’s closest at an annual rate of 89-percent. Most solar and wind farms are booking annual capacity factors of approximately 25-percent. For a wind or solar farm to achieve 100-percent capacity factor, standby generator(s) would have to be operating 75-percent of the time.
All other things being equal, part-time resources tied to wind and solar facilities are money losers. Unless the local grid is willing to compensate investors with a healthy capacity payment (rent) to not produce energy, no investor could justify the capital expense for a standby generator. And it turns out that many of the nation’s Regional Transmission Organizations (RTOs) are unwilling to make that investment, or if they are, their compensation is inadequate.
Power Markets Can Do the Job
However, RTO’s solution to manage intermittent power from wind and solar relies on the power markets. RTOs see a market of power generators and a portfolio of resources. They can use existing turbines to supplement wind and solar farms and most of those resources do not need to turn down to respond to load-following demands.
Investors in gas turbines are better off owning assets in a power market than tied to a specific solar or wind farm. In the power market, they can expect higher capacity factors and concomitant earnings. They also can respond to the intermittent nature of the grid’s solar and wind resources.
There are two exceptions: Small grids and locational constraints. Small grids include islands, such Hawaii and the Caribbean. They also include underdeveloped grids, such as Alaska and military bases seeking to achieve off-grid capabilities.
Most exceptions are locations that are already saddled with high costs of energy. Many are forced to use the most expensive fuel in the utility industry; oil. In these cases, investors can justify redundant capital investments to offset their costly fuels.
In energy cost situations, General Electric’s recently announced FlexEfficiency 60 turbine is most effective. It can be easily paired with wind and solar to reduce overall electricity costs. As was previously reported, GE’s FlexEfficiency 60 is rated at 750MW and, “When you don’t want to run that plant you can turn it down to 100MW, which is an incredible new standard.”
Siemens is also offering new gas turbines with turn down capabilities. They improved their SGT6-5000F (formerly called W501F) to enhance dispatchability, increase efficiency and lower life cycle costs.
The biggest opportunity to pair standby generators with renewable energy is in small grids. Military bases, islands, developing countries and remote areas are the prime opportunities. But in these instances, a very smart grid, called a micro-grid, is required to manage intermittent resources against varying loads.
Component manufacturers such as Boeing, Siemens, and ABB, Ltd are developing components and software for new microgrid technologies. Utilities such as American Electric Power, Consolidated Edison and Sempra Energy’s San Diego Gas & Electric have become system integrators that may deploy microgrid systems in congested regions, campuses and military bases.
Adding renewable energy to small grids can lower costs by minimizing the use of expensive fuels, particularly if efficient gas turbines like GE’s FlexEfficiency 60 are deployed. But standby generators are uneconomic in large and mature grids.
At the time of publication, Glenn Williams had no position in any of the stocks mentioned.