Energy Exchange

A couple of weeks ago I posted what I had intended to be a pretty innocuous quick discussion about new numbers from Austin Energy showing that renewable energy investments have saved Austinites a significant amount of money.  I was pretty surprised (and flattered) at all of the thoughtful responses.

Most flattering was a comment from Ross Baldick, even if he took issue with my post. Ross Baldick, though he didn’t mention it in his comment, is a professor of Electrical and Computer Engineering at UT and gives a class at ERCOT on the economics of locational marginal pricing. (You might think it sad that a comment from Dr. Baldick is the highlight of my blogging career, but I make no apologies for being an energy geek.)

He pushed me to consider an additional scenario about how the mix of wind, coal, and natural gas affects Austin’s energy costs.

Wind energy is starting to impact coal plants
That Dr. Baldick had taken the time to read and respond to my post was great, but I was more than a little disheartened that he felt my comparison of wind offsetting gas was misleading. I have heard him speak a number of times and taken his ERCOT class (which I highly recommend – he really knows what he’s talking about). One of the things Dr. Baldick has been talking about for some time is his research showing that wind prices have driven ERCOT clearing prices very low and will continue to do so, and why that makes new “baseload power” like coal plants a bad investment.

During our discussion, it became clear that our differences are less in the numbers than the short and (admittedly) simplified discussion around the numbers I presented. Dr. Baldick pointed out that although historically in Texas wind power has primarily offset gas, as I assumed in my original post, wind is beginning to impact coal as well.  It wasn’t until my conversations with Dr. Baldick and his colleague Dr. Webber, who heads up the Webber Energy Group, that I began to realize how just how much coal Austin Energy might be avoiding by using wind energy.

Dr. Baldick has been studying the growing amount of coal power being replaced by wind energy for some time; a presentation based on his studies finds that any investment in new coal plants is financially unsound primarily because of wind energy driving clearing prices down. Leading the way, Austin Energy has stated that they have begun to use wind energy to offset its coal plant when it makes good business sense to do so.

A more detailed analysis accounts for replacing coal power, not just natural gas

Because utilities don’t provide the kind of hourly data needed to study this stuff thoroughly, I decided that the simplest approach would be to look at a scenario where wind offsets coal 50% of the time and gas 50 % of the time. Everyone that I’ve talked to about this agrees that the amount of coal power currently replaced is much lower than that, so this provides us with a good conservative floor for how much Austin Energy is saving. Now we can look at two scenarios: one from my original blog post (in which 100% of wind energy is used to offset gas) and this new scenario, which I’ll call “high coal.”

These two scenarios give a kind of “sensitivity analysis” or an idea of the range of impacts that Austin Energy’s investment in wind energy has had over the past two years. I originally estimated that wind energy has saved Austinites almost $50 million over the last 2 years.  The “high coal” scenario shows smaller but still substantial savings of almost $10 million dollars for Austinites over two years. Still, this is making the best of a very limited dataset, and it would be very interesting to see ERCOT follow up on its wind studies to see how wind is impacting different generation resources.

It’s important to note that these two years represent a sort of “sensitivity” on gas prices as well, since the highest gas prices in history were in 2008 and lowest gas prices in the past 8 years were seen in 2009, and are likely the lowest prices in the foreseeable future.  That fact also highlights an important benefit of renewable energy to a utility: providing a hedge against volatile fossil fuel prices. As natural gas prices and market purchases recover to more sustainable levels, Austin Energy will be saving money through their long term contracts with wind generators.

In any case, investment in renewable energy is a key cost-saving measure

To the extent that Austin Energy uses wind to offset coal generation those savings will be somewhat less for the time being, as the tables from my last post demonstrate.  Dr. Baldick was quick to point out in our discussion that this is in large part due to the fact that CO2 emissions from power plants have not been properly priced yet.  Not for long, though: at the beginning of this month the EPA took the first step by regulating greenhouse gasses from light duty vehicles as required by the Supreme Court’s 2007 decision.  This sets the stage for the EPA to begin regulating power plants, which they plan to start in 2011.

Whether greenhouse gas regulations from the EPA or Congress, we now know that they are coming within the next year.  This fact makes past and future Austin Energy’s investments in renewable energy an important cost-saving measure for Austinites as fossil fuel generation costs continue to increase for a number of reasons.

I admit I was happy to let out my inner wonk with these figures, but the real questions are still out there waiting for serious study by the organizations with the rich data, such as ERCOT or Austin Energy.

Texas is the national leader in wind, and that’s something I love bragging about, but we need to be able to say why that is and what it really means in terms of environmental and economic impact. Based on what I’ve learned from the work Dr. Baldick and Dr. Webber are doing I think we’ll have a lot to say about that, and the sooner the better.