Engineering Climate Change Challenge

Charles Bayless recently retired as President and Provost of the West Virginia University Institute of Technology. Previously he was chairman, president, and CEO of Illinova Corporation and its wholly owned subsidiary, Illinois Power Company. Prior to joining Illinova Corporation, he was chairman, president, and CEO of Tucson Electric Power Company.

PUF's Steve Mitnick: How can we get our electricity system cleaner, and how can we resolve the disagreement over the final goal?

Charles Bayless: Disagreement is good. The way we make progress is by having fifty different ideas. Forty-eight of all entrepreneurs go bankrupt, but two of them make it.

If you don't believe in climate change you should go back and take freshman physics again. For ocean acidification, high school chemistry will do. It's not hard to understand, like string theory or dark matter. 

It's not only the U.S. The world must change. Even if we got everyone in the U.S. together and we did something, it might set climate change back by a couple of years. But we've got to get the rest of the world to go along too, and that's hard.

"Ocean acidification is as great a problem as climate change, but it doesn’t get as much attention." – Charles Bayless

The disagreement about the goal arises from our inability to predict exactly what will happen to the weather in fifty or one hundred years. Climate deniers sometime point to this inability as an excuse to delay action. But just because we can't predict weather two months in the future, that doesn't mean there isn't going to be weather.

Every second, we add excess energy equivalent to about two World War Two nuclear weapons to the earth's atmosphere. It is ludicrous to believe we should wait until all of the ramifications are known. By then it will be too late. Ocean acidification is equally as great a problem as climate change, but it doesn't get as much attention. We really have no logical choice but to start doing something about these problems, yet we continue to delay and rationalize because it is inconvenient to act.

The utility system is long-lived. Power plants have forty- to sixty-year lifetimes. It will take a long time for the existing fleet to reach the end of its useful life. In some jurisdictions, there is an economic incentive for utilities to delay closure. We still have a long way to go in solving the problem of turning intermittent power into reliable power. And, we have to consider the expense.

The people who say solar is as cheap as coal are right on a per kilowatt-hour basis. But a lot more goes into the cost of electricity than kilowatt-hours. They are wrong if you compare the cost of reliable delivered energy from renewables with that of fossil fuel.

Renewables cost a lot more. I compare it to copper ore. You can't sell copper ore for the price of refined copper. That's what many renewable energy providers are trying to do with net metering. They are trying to sell "unrefined" energy for the full price and let the utility refine it for free.

If you don't believe renewables cost more, go to Ontario or Germany. I was on the board of the Ontario power authority when we totally phased out coal, and I am very proud of what we did. But rates went up. Governments must make the trade-off between the cost of current electricity and their grandchildren's future. Ontario made the right choice.

The problem is the cost of externalities. Fossil fuel providers and many in the utility industry are missing the externality costs of carbon. Renewable producers are missing the externality of the cost to refine their product and change it into utility grade electricity. However, if you add in the cost of all externalities and discount the future ones, solar and wind are much cheaper than fossil fuels.

PUF: How far can we go towards getting a high level of renewables?

Bayless: With the existing grid and with a lot of gas turbines, storage and modifications to transmission lines as well as a nationwide high voltage DC grid, I believe we can get up to seventy or eighty percent. But it will be expensive. I view the current debate about how high we can go as largely academic and missing a key point in economics. I believe we can go to one hundred percent, but do we want to? It will be very expensive.

Entropy is at work. It's the law of diminishing returns. For example, if it's going to cost you fifteen cents per kilowatt-hour to get up to eighty percent, it's going to cost you thirty cents per kilowatt-hour to get to ninety percent. It's going to cost you eighty cents to get to a hundred percent.

I made up those numbers. The renewable producers will scream, but they always seem to neglect the externalities of "refining" their intermittent electricity into a finished product. That is where the cost radically increases as we go to higher and higher levels. I am trying to illustrate that we may be wasting money by trying to get to one hundred percent. At some point, society will be better off stopping the upward drive to renewables in the electricity market. And we should use the money saved to reduce carbon in another sector where we can achieve greater reductions at less cost. Of course, as costs come down, the renewable penetration break-even point will move higher.

Even with the increased costs, we have a moral duty to reduce carbon because of the twin evils of ocean acidification and climate change. It's for our children and grandchildren. A lot of people overlook the fact that although there probably are things you can do to mitigate climate change, these actions do nothing for ocean acidification, which is equally as big a problem as climate change.

PUF: What major investments and new technology are required to solve those problems?

Bayless: Obviously, more renewables and transmission. With a coal, gas or nuclear plant you can take the fuel to the plant. With renewables you must take the plant to the fuel. Hopefully, that fuel (sun and wind) is co-located with the load, as it is in Arizona. Having to take the power plant to the fuel, for example in North Dakota and Texas, leads to much longer transmission runs. One of the best hopes to reduce intermittency is to locate renewables in different locations that require even more transmission. I believe a national high voltage DC grid is the best option for this problem.

Next, you will need a lot of equipment, batteries, gas turbines, DSM and electric cars to turn intermittent power into the reliable "five nines" power.

One of the main drivers of the cost of renewables is the old-versus-new factor. That drives the cost up. Whether the new generation is coal, gas, nuclear, wind or solar, it's replacing old generation with new generation.

Take a reasonable size power company with five thousand megawatts. Let's say they were to decommission a one thousand megawatt coal plant that was depreciated and in rate base for a hundred dollars per kilowatt-hour. What if they then put in a brand new identical coal plant, one with scrubbers? It's going to cost a couple thousand dollars per kilowatt or more, and that's going to drive rates up twenty or thirty percent. Although solar and wind do cost more because they are intermittent, much of the increase is due to replacing old depreciated generation built with 1960 dollars with new full cost generation.

PUF: What is the problem with net metering?

Bayless: If you live where I do near Concord, New Hampshire, and every day you drive to Boston and back, you're not a net zero user of the interstate. But that is what net zero users are claiming for the grid. I say, "If you aren't using it, cut loose," but of course no one will. That's because they are using the grid to buy electricity at one time and selling it at another. They are using it for backup voltage control, frequency control, and so forth. But because their net usage is zero, they claim to not be using the grid.

We cannot continue with net metering the way it is. I'm all in favor of some sort of net metering, but there must be demand charges for transmission, backup generation, ACE balancing, and frequency support. Go to the extreme. If everyone were a net zero customer, then no one would pay anything. But somebody would still have to supply them with power when they weren't generating: provide reliability, voltage control, and so forth. Look at nighttime in New York City, for instance. Who would be supplying power and who would be paying for that?

It always amazes me that solar companies who loudly proclaim the wonders of net zero then turn around and sell batteries to their customers. Those are clearly net zero batteries. Having listened to their rationale for not paying utilities for furnishing better services than the battery provides, I would have assumed they were giving them away.

PUF: How would you ramp up the low carbon and zero carbon roles on our grid?

Bayless: I would phase out the coal plants in reverse merit order over a stated period of time, taking into account items such as RMR plants. If there were an old coal plant that had a thirteen thousand heat rate, it would be the first to go.

You could also say, "You can only run this coal plant for eight thousand hours this year, next year it's seventy-two hundred hours and the next year it's six thousand hours." At the same time, you could increase RPS standards. A carbon tax or cap-and-trade system would also let the market work to reduce emissions.

One of our problems, but also one of our strengths, is state-by-state regulation. On the strength side we will try fifty different solutions. Through organizations such as NARUC, the best will be passed on and will win. On the problem side, I've often likened utility regulation to the air traffic control system. If we had fifty different air traffic control systems in the U.S., no one could ever fly across the nation because the rules would be different in each state. This makes it hard for renewable producers to operate in many states.

When I was CEO of Tucson Electric, we formed the retail energy provider New Energy Ventures. As we tried to expand we were going nuts. What was mandatory in California was prohibited in Wyoming, okay in Kansas, but frowned upon in Texas. You had to do a business plan for each state. That makes it hard for solar and wind to operate.

I think the difficulty in building transmission is one of the huge problems for the widespread adoption of renewables. I can give you so many examples. When I was at Public Service Company of New Hampshire, we built a twenty-three mile line. It would take around seventeen years to build the line, fifteen to permit and one year to build it. Look at the AEP seven hundred fifty kilovolt line in southern West Virginia, same script. That scenario is unfortunately playing itself out again in New Hampshire with the Northern Pass Line.

I'm amazed at the Clean Line transmission line project that will deliver wind power from Texas to other states. I'm amazed that those guys have been able to pull off the permits for that. I think that's because it's Texas. But in many states all it takes is one landowner to say no, and the project is stalled.

As Amory Lovins pointed out years ago, it's cheaper to not use a watt than it is to build a watt of power plant. Energy efficiency is and will continue to be critically important.

The problem with many solutions is the externalities. Externalities make governing anything, especially in the U.S., difficult these days.

Early in our country's history, Farmer Jones lived here and Farmer Smith lived over there. The only externality was smoke from the Jones chimney, if it blew over to Smith's property. There were few externalities. Today, it seems that almost anything we do affects hundreds of different classes of people in thirty different jurisdictions.

Politicians trying to look out for their jurisdictions can't look at the big picture and ask what's the overall cheapest power resource? The problem with building transmission is that there are externalities. It's hard to make those decisions, and it's hard to get approval from the people whose neighborhood the transmission line goes through. All they see is the direct cost and that the line is blocking their view, even though it will provide massive reductions in carbon.

Power lines are probably the cheapest things to build to implement renewables because of what I call the Cleveland effect.  If you live in Cleveland, you have five yucky non-windy days in the winter, which is normal, followed by one beautiful sunny, windy day, followed by five yucky non-windy days.

You not only need five days of storage, but, with renewables, because you need to generate all of the power for the batteries in one day, you need six days of generation. That's one day of generation for the current day and five days' worth of generation to charge the batteries. It's incredibly expensive. It would be cheaper to build power lines to North Dakota. But that involves externalities. The U.S. is unlike China, where the government has all the cards.

China can build these things, and they're building them. They just say, we're going to build it. I obviously still prefer living here. But it would really be great if FERC had the same authority for transmission lines that they have for gas pipelines.

PUF: How do you feel about tough state standards?

Bayless: The tougher the better, up to a point. Hawaii, because of its wind potential, is probably in a better position than most states, and I'm very excited about that. I wish the merger had gone through and NextEra could have been approved. NextEra would have really put the pedal to the metal to run a totally or very high renewable grid.

California shows the other side. I worry about California. They're retiring plants at a very fast rate. I hope it doesn't happen, but if there is a large blackout in California because of lack of generator inertia, cascading outages or something, it's not going to surprise me. Some California net metering schemes are just printing money for wealthy Californians while passing on the cost to low-income people.

PUF: What's the answer to all these challenges?

Bayless: Full cost accounting. If you read chapter one of the economics textbooks you realize that the market cannot make correct decisions without correct costs. Yet we neglect huge externality costs and then say, "let the market handle it." Without including all of the costs of "refining" electricity in the net metering schemes, the market cannot pick the correct winner. We will put in billions of dollars of high-priced equipment which someone must pay for, although cheaper alternatives were available.

I am not anti-net metering. I think it can be very valuable, especially in states like Arizona where the fuel (sunshine) is co-located with load. I am against ignoring all of the costs for a market solution. We are sinking our grandchildren's future with carbon emissions and saddling them with huge unnecessary costs with some versions of net metering.

We need to listen to the engineers and not ignore what they're saying. A lot of people say, "Oh, I know the engineers are saying that, but technology will solve the problem." It may, but at what cost? We run the most complex machine in the world, and piecemeal optimization doesn't work in that environment.

Unfortunately, with both climate change and ocean acidification, by the time the average person realizes it is a catastrophe, it's going to be too late. It's irreversible. If we stopped right now, they would nevertheless continue. It's as if you turned on the stove. The water doesn't immediately boil. It takes a while.

Right now temperature has to heat up enough to send out another 0.6 watts of radiation, so it's going to take a while. By the time we recognize this really is bad, with more heat waves, more huge storms, it's going to be too late.

PUF: You seem to have a rather strong opinion on many things.

Bayless: That is one of the advantages of being retired.