Renewable Energy and Eating Elephants: What’s the Connection?

Tesla Battery Plant in South Australia (REUTERS)

How do you eat an elephant? Of course, one bite at a time.

How do you solve the problem of greenhouse gases? Maybe the same way you eat an elephant. That may be an unexpected conclusion from the big news this week that Tesla has installed a gigantic battery in South Australia.

And it may represent another great solution to greenhouse gas emissions that has nothing to do with the Paris Climate Treaty.

You probably heard that Tesla built the world’s largest battery -100 MW/129 MWh — and capable of powering up to 33,000 homes. Much of the announcement focused on Elon Musk’s promise to build the entire plant in 100 days or it would be done at no charge to the South Australian government. A pretty big claim, but Tesla did it.

Great headline, but the real reason the plant is so newsworthy is because it provides a solution to the biggest problem of renewable energy — storage. Solar and wind power have both now become very cost competitive. But each has its own Achilles Heel. In the case of solar power, it’s the fact that the sun sets every day and can’t power solar cells half of each day. In the case of wind power, it’s that while the wind blows strongly sometimes, its still much of the rest of the time. So you can’t count on either source much of the time. Therefore, you can’t make either solar or wind power the core of an electricity generating plan. You have to depend upon greenhouse gas emitting fuels to provide the needed reliability.

Until now. The Tesla battery in South Australia may represent the key to making solar and wind far bigger components of our energy generation, maybe even the core. The reason is because giant batteries such as the set up in South Australia provide a way to overcome the limitations of solar and wind power described above. With effective battery storage, solar and wind power can charge the Tesla batteries, then provide battery power when either the sun doesn’t shine or the wind is calm.

These batteries also can provide another important benefit: load leveling. The amount of power required varies over the course of a typical day. The demand is typically high during the day, when factories are humming and people are at work or school. Conversely, energy demand is usually pretty low at 3 am when the average person is sound asleep.

Peak demand differs around the country. In places like Florida and Arizona, it typically occurs in the afternoon of hot summer days in July and August when air conditioners are blasting away. Conversely, in New England it typically occurs in the early evening in January or February when huge amounts of power are needed for heating.

The electric utility, of course, has to be prepared for both the peaks and valleys. Dealing with low demand at 3 am isn’t a problem, but having enough capacity for the peak usage times is essential. Up to now the typical electric utility had two options. Option 1 is to build and maintain backup plants to provide power for these peaks. Option 2 is to buy power on the open market. Both options are often very expensive.

The Benefit of Leveling the Load

Tesla style batteries now could provide a third option. The batteries could be charged in the middle of the night, then drawn upon to cover peak demand. The chart above shows how power could be stored at non-peak times, then used to reduce peak demand, thus leveling the overall load.

This could be done by the electric utility for its entire system, but it could also be done on a smaller scale. For example, individual businesses could buy batteries, draw power from the grid to charge those batteries in the middle of the night, then draw upon the batteries at peak times. This could be especially beneficial to the business because it will reduce the “demand charge” that the business pays to the electric utility.

Many people are not familiar with a demand charge. While the average residential customer pays for the number of kilowatt hours (KWH) consumed, the typical business pays not only for KWH consumed, it also pays a charge each month for the peak amount of power consumed. The company may only use this peak amount of power for a minute or two, but the electric utility charges for that momentary peak usage. The reason is because the utility has to have its system prepared to deal with the spikes, irrespective of cost.

Having a battery on site at the business could help to reduce that demand charge. The company will still pay for the same number of kilowatt hours consumed, but the peak will be lower so the overall power bill will be lower.

In the case of residential customers who have to pay a demand charge, the same thing is true. Having a battery in the garage could be useful for smoothing out electric demand. The other way it could be beneficial is if the electric utility charges different rates at different times of the day. If power is cheapest at 3 am, when demand is low, the batteries can be recharged, then discharged again when demand is high and/or prices are highest.

With Tesla style storage batteries, the entire electric grid could now theoretically run with solar and wind power as the core, and without any fossil fuels. The Energy Information Administration of the US Department of Energy reports that the USA uses about 4 trillion KWH of electricity yearly. What would have to happen for the USA electric grid to eliminate all fossil fuels and rely strictly on wind, solar, hydro, and existing nuclear installations? That would get the USA to zero emissions.

About 20% of electric power is generated either by hydropower or nuclear, meaning that 80%, about 3.2 trillion KWH, come from fossil fuels. The average daily production in September, 2017 was 11,138,400 MWh. Thus, 80% of those 11,138,400 MWh, or 8.9 million MWh, were generated by fossil fuels. Assume that 60% of that consumption occurs during either daylight hours, or when the wind is blowing strongly, and the remaining 40% is when it’s either dark or the wind isn’t blowing. That means that there would have to be 40% * 8.9 million MWh, or about 3,560,000 MWH of storage. All that storage would power the grid when the sun isn’t shining and the wind isn’t blowing.

The South Australian Tesla plant can store 129 MWh or 129,000 KWH. Thus, it would take about 28,000 of these South Australian Tesla plants to provide adequate storage so the USA could theoretically eliminate all greenhouse gas generating electric power. This, of course, assumes no additional usage of electric energy to power Tesla automobiles or other electric vehicles. Looks unrealistic.

In other words, we have an elephant — the need for a massive number of battery storage units to permit the elimination of fossil fuels. So how do we “eat the elephant”? Obviously, one bite at a time. Let’s take a look at how the elephant might be sliced into reasonable bites.

There are about 1,000 electric utilities in the USA that generate electric power. Some are obviously larger than others. That would mean the average USA electric utility would need about 28 to 30 of these Tesla South Australian plants. Once again, probably unrealistic, at least in the short run. However, in the longer run, it really isn’t unrealistic.

Here’s why.

Electric utilities have built in incentives to build or buy assets. That’s because utility rate-setters set electric utility rates in part based upon the value of the assets the utility has in place times an allowable rate of return on those assets. The thinking is that it will pay for the cost of the debt capital the utility has borrowed from banks and other institutions, as well as pay a rate of return on the capital invested by shareholders. Other things being equal, utilities like to increase the amount of assets in place because it means they’ll generate more revenue.

If we want to eliminate greenhouse gases from electric power generation, we need to expand the job to include power storage, not just power generation and distribution.

When you think about it, electric utilities should love the idea of building Tesla style battery farms. Of course, one reason is the benefit of providing protection against blackouts, as well as load-levelling. The utility will tout these benefits to the public, and everyone will sleep better at night knowing that when each of us plugs an appliance into the wall socket, it will likely work, and it won’t cause a blackout.

But electric utilities should also love battery farms because they’ll increase the revenue of the utility. This is because the revenue the utility generates is partly a function of how much capital the utility has invested. More capital usually means more revenue.

The utility customers, of course, will be paying for these battery farms, but everyone really should be happy with this arrangement.

But electric utilities, of course, only have so much capital. The average electric utility generator will be able to afford many of these battery farms, just not likely an average of 10,000 each. Moreover, it probably makes sense for electric utilities to focus their attention on building highly efficient solar and wind farms. There’s no question that large scale solar and wind farms are probably far more efficient than rooftop solar systems. And the economics increasingly make large scale solar and wind farms highly attractive to utilities.

But there are actually two different “elephants” here. One “elephant” is how to generate enough wind and solar power to meet all power needs without relying on fossil fuels. The other “elephant” is the one concerning how to store that power overnight or when wind power isn’t available.

Once again, let’s remember how to eat an elephant: one bite at a time, whether it’s the renewal energy generation elephant or the renewable energy storage elephant. When it comes to the storage “elephant”, consider that individual consumers and businesses could also finance some of these battery farms. Let’s consider residential usage. In 2016, the average residence in the USA used 10,766 KWH of electricity, or 897 KWH/month. On a daily basis, that’s about 30 KWH. Assume, for a moment, that the average residence is on a grid that only has access to solar power. Since the sun only shines about 12 hours/day, then the typical residence would have to draw in its 30 KWH during daylight hours, then drawn down the battery during the dark hours. Batteries are available today that can handle that type of load in the average home.

Many people have outfitted their homes with solar panels and dramatically reduced their dependence on purchasing electricity from the utility. Now with battery systems such as Tesla’s, the homeowner could both generate his own power, as well as store it when the sun isn’t shining.

Which is where things start to become problematic. Many utilities see this as a threat to their traditional business models and have fought such systems. Instead, many utilities have lobbied to maintain complete control over electricity generation. In my mind, it’s shortsighted, but a reality.

The key takeaway, however, is that the Tesla South Australian facility points towards the possibility of moving to an entirely non-fossil fuel energy generation system. When you factor in the potential of electric vehicles, it points the way to eliminate fossil fuel usage for automobiles and trucks, as well as electricity generation. Combined, that would represent more than 50% of all greenhouse gas emissions in the USA. If and when that happens, the USA will largely have resolved its greenhouse gas emissions problem.

The economics increasingly work in favor of renewables, so utilities should have plenty of incentive to build renewables plants. Now we just need to make sure there are proper incentives to build the battery storage capacity that will permit the growth in renewables energy.

Admittedly, that’s a huge undertaking. Two giant elephants. Again, however, how do you eat an elephant: one bite at a time. The Tesla battery plant points towards a way that the USA, as well as other countries, could pretty well solve the greenhouse gas problem by switching almost entirely to electric vehicles for ground transportation, and switching pretty much all electricity generation to renewables while maintaining current investments in hydropower and nuclear. It could do this by creating the means to cut the elephant down into bite sized portions.

Yes, it sounds crazy. But as an old friend of mine likes to say, the question isn’t whether it’s crazy, is it crazy enough? I think it is.

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