Salient White Elephant

June 21, 2009

Business Savvy or Sexy Technology?

Filed under: Brash Environmental Commentary, Wind Energy, Wind Power, Wind Turbine — Tags: , , — Salient White Elephant @ 11:40 am

The earlier post, Why Renewables Aren’t Cost Effective, describes how a taking a different approach to the business of wind technology may produce even more attractive results than a dazzling new technology. Let’s look at other ways for using business ideas to improve the profitibility of small wind.

The Problems with Small Wind

There are two problems with small wind – maintenance and financing. Let’s start with maintenance.

Maintenance

Not many home owners want to climb an 80 foot tower to fix a 10 kilowatt wind turbine. To date, the designers and manufacturers of small wind machines have solved this problem by making their machines virtually indestructible. Many have only a few moving parts – the rotor, slip rings, and yaw bearings. But these machines still break. They could even be hit by lightning!

My answer to this problem is to first reduce the cost of the machine by making it more destructible. If the cost is reduced by a sufficient margin, then it will be deployed in larger numbers. If the number of machines in the field reaches a significant threshold, then a business can be developed for maintaining the machines. In other words, opt for a cheap clunky machine rather than an expensive high tech ultra-reliable machine. Now a customer either hires the maintenance company to repair the turbine or exercises warranty privileges. Technicians repairing the machine are experts, and they aren’t afraid of 80 foot towers. In other words, you can spend your money on two different options:

  1. super duper designs with super duper components, or
  2. mediocre designs with mediocre components and a solid company that provides highly qualified service technicians.

The later option makes more sense. Most home owners won’t even consider learning to repair and maintain a wind machine, but they’ll consider an option that’s backed by service contracts and warranties.

Financing

How long does a wind turbine take to pay for itself? Oh man… I don’t even want to know. If you’ve seen this kind of financial analysis, it’s complicated, and I doubt the average home owner can even understand it, much less believe it. But wait a second… if it’s true… if it really is true… that a 10 kilowatt wind turbine for your back yard is a good investment, then why aren’t there companies that bank roll the installation of such machines in exchange for dividing the wealth so created with the homeowner? Just as service technicians know more about repairing wind machines, financial companies know more about financing them.

What Does This Company Look Like?

The small wind machine manufacturer proposed here does not sell wind machines – it sells electricity. And it sells the electricity to the power company, not to the homeowner. In other words, the homeowner has exactly the same relationship with the small wind company that a farmer has with a utility scale wind farm owner/operator. Just as the utility scale wind farm owner/operator pays the farmer a monthly fee for the privilege of using a few hundred square feet of his farmland, the small wind company pays the homeowner a set monthly fee for the privilege of using her home to produce the electricity that is sold to the power company. The home owner sees a “reduction in her electricity bill” equal to the monthly fee she receives from the small wind company. Everything else, the construction, grid connection, maintenance, repair, and financing of the wind machine is the responsibility of the small wind company proposed here. All the homeowner has to do is avoid hitting the base of the tower with her lawnmower!

Negotiating Power Purchase Agreements

Another advantage of the company proposed here is that, provided its revenue is sufficiently large, it enjoys a strong negotiating position with the utility company. Consider this. When a company that owns a wind farm sells electricity to a power company, what happens to all the energy that is lost in transit as the electricity is carried 30 miles to the consumer over high voltage power transmission lines? Well… maybe it’s easier to look at the flip side of that coin. Suppose you install a wind machine in your back yard and run your meter backwards. The power company just saved a bunch of money because little of this energy is lost in transmission, since it is all used either in your own home or at least in your own neighborhood. The power company also saves money in reduced maintenance of high voltage transmission lines, and reduced need for transmission line capacity in the first place. How much of these savings do you think will be reflected in your electricity bill? You guessed it – zero. You just gave the power company a nice birthday present, and every day is their birthday!

The home owner is not in a position to challenge this state of affairs. But the company proposed here that operates tens of thousands of small wind turbines around the province is in a position to negotiate a reward for the benefits they provide… including the benefits of producing electricity at the point of consumption rather than 400 thousand miles away at the other end of a 10 billion dollar 900 thousand volt transmission line.

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Why Renewables Aren’t Cost Effective

The last electric bill I got charged me $65 for the luxury of being connected to the electricity grid, and $5.00 for the electricity I used. In other words, if I had conserved all of my electricity, using no electricity at all, then I would have saved only $5.oo! My bill would have been $65 instead of $70! Really makes you just want to go all out to conserve resources and reduce pollution, doesn’t it!?

The logic behind this rate structure is that the utility company must make electricity available to you whether you use it or not. They must guarantee that if you wake up at 3 o’clock in the morning and turn on every electrical gizmo in your house, then the electricity to power these devices will be available to you. That’s what I paid the $65 for. This $65 portion of my bill is appropriately called capacity charge. It varies based on how much capacity I require, as I will explain in a moment.

Two questions immediately come to mind:

  • Does this rate structure encourage waste. Answer: YES!
  • Does this rate structure reflect the utility company’s cost structure? In other words, are 65/70 = 93% of their costs really devoted to the provision of the service, with only 7% of their costs spent of making electricity? Well.. who knows… but does it sound believable to you?

How the Capacity Charge is Calculated

Now let me explain how the $65 is calculated. Basically, they keep a record of the amount of power you draw for 6 months. Then they look at the maximum amount of power you drew in any one minute for that 6 months, and your capacity charge is based on that amount. Let’s say for example that 3 1/2 months ago I turned everything in the house on at the same time and drew 10 kilowatts. And let’s say that this is the most power I drew at one time during the last 6 months. Then my capacity charge, $65, is based on that 10 kilowatts. Now suppose 2 1/2 months elapse, so that the moment when I drew 10 kilowatts is now more than 6 months ago. Now we look back over my history and find that the most power I drew at once during the last 6 months was only 5 kilowatts. Now my capacity payment drops to $65/2 = $32.50.

How to Beat the System

The manufacturers of small wind turbines designed for residential use are always complaining about this rate structure. Strange, huh? These small wind turbines go on dutifully pumping power backwards – into the grid rather than out of the gird – knowing that if there was so much wind as to make your net power consumption zero you would still only save $5!!! No wonder it takes so long for a small wind machine to pay for itself!

And yet the answer is obvious. Get a small wind machine, add a small battery, and use the wind turbine to keep the battery charged. Now design some electronics to detect peak power usage. Now if I wake up at 3 o’clock in the morning and turn everything on in the house, the wind turbine battery suddenly turns on to limit my peak consumption as much as possible. If the system is able to cut my peak consumption from 10 kilowatts to 5 kilowatts during the 5 minutes that I keep everything turned on at 3 am, then in that 5 minutes I just earned $35! Contrast this with the $5 I would have earned had my wind turbine worked hard every minute of the whole month, producing 100% of the electricity I used for that month!

Is a Wind Turbine Even Needed?

Obviously not. Just draw the electricity from an electrical outlet in your wall in order to charge the battery whenever you aren’t using much electricity for anything else. Now when you turn a lot of things on, the electronics that control the battery realize that you are approaching peak power consumption, and they kick the battery on so that it supplies part of the power you need, thereby limiting your peak consumption and its associated capacity charge.

If You’re an Environmentalist – Play It Smart

So if you don’t need a wind turbine, then what does all this have to do with wind energy? Well… if everybody had these battery systems in their homes to level out power consumption, we’d find out real quick whether $5 is really enough to cover the cost of electricity produced. My bet is that you’d see the rate structure change real quick. Once the rate depends more on the actual amount of energy the utility is required to produce, then it becomes more cost effective to install your own wind turbine and run the meter backwards.

Related Technologies

There’s a whole slew of technologies for conserving energy that become obvious when you look at the problem from the perspective of this post. For example, what about a clothes dryer that automatically shuts off anytime peak household consumption exceeds 5 kilowatts, and then turns back on anytime peak consumption dips back down below 5 kilowatts?

The Moral of the Story

The moral of the story is that environmentalism that is based on nothing but complaining is doomed to fail. What we need are jazzy inventors and entrepreneurs who are patient, calculating, and sufficiently intelligent to twist the arm of a greedy industrialist behind his back and inform him of changes to his job description. He needs to know that his duties no longer include destroying the planet and sending other people’s children overseas to die fighting over oil.

Remember – if twisted logic and pretzel laws work for those who oppose efficiency, then they will work for the proponents of sustainability as well.

A Product and Business Based on this Idea

You buy a product that includes electronics that monitor your electricity usage. A continuous record of electricity usage is kept. The system includes a battery that is just large enough to absorb the average amount of power you use in a day from the power grid. The electronics are designed so that the battery draws enough electricity for one day from the power grid between the hours of minimum demand. Let’s say the hours of minimum demand are from 11pm to 5 am. The battery draws enough power for one day’s worth of your electricity consumption, and it draws that power at a steady even rate from 11pm to 5am every evening. Anytime you use electricity in your house, it is drawn from the battery.

Now, to the power company, you are the ideal customer. You never draw anything but a small steady flow of power during the hours of minimum demand (when they’re trying to figure out how to get rid of their excess power anyway). If ever you use more than your average amount of power, the battery system is bypassed and you draw straight from the grid (increasing your electricity bill).

I think this is what they mean by the “smart grid”. (I keep seeing that term on the internet, but I haven’t had a chance to look it up in the dictionary yet.)

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