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Jhm, thanks for your analysis of the impact of a "border adjustment tax". I hadn't thought it through, but it does make sense that it would raise oil & gasoline prices in the US while dropping prices globally.
This can only be good for electric cars. High US gasoline prices cause more sales of electric cars while lower international prices have little or no effect on sales (US oil & gas prices are currently lower than the world average). It should also hurt the oil & gas industry -- low international prices cause oil production to drop, while high US prices have little or no effect on US production because there just aren't that many good places to drill left in the US
This can only be good for electric cars. High US gasoline prices cause more sales of electric cars while lower international prices have little or no effect on sales (US oil & gas prices are currently lower than the world average). It should also hurt the oil & gas industry -- low international prices cause oil production to drop, while high US prices have little or no effect on US production because there just aren't that many good places to drill left in the US
Regarding California, I've been gathering hourly data from CAISO that breaks down the production of power by type of generation, wind, solar, hydro, thermal (fossil gen), imports, nuclear, etc. So I've analyzed this data I've tried to estimate how much storage would allow non-renewables to be replaced by pure baseload on a daily basis. This is roughly the amount of storage needed to eliminate peak power generation.
Average consumption in California is about 25 GWh. About 50 GWh /12.5 GW is sufficient to handle intraday variation in demand net of renewables.
Also peak demand for the last 24 months is about 47 GW. This peak load imposes a capacity requirement on the transmission grid. The grid must have sufficient capacity to handlet the annual peak. So if 12 GW of batteries were spread out at the substation level or closer to consumption, then the peak load on the transmission system could be reduced to as little 35 GW. This implies a 30% reduction in capacity requirements for the grid. A rough estimate of the annual cost of the transmission grid is about $175/kWpeak. So batteries strategically placed to reduce the peak load on transmission offsets a cost of $1750/kWh over a ten year life of the battery. In addition to transmission savings, well placed batteries can reduce distribution costs too. And all this is in addition to the value of replacing gas peaker energy with renewable energy. That is, the value of storing renewable energy in batteries to compete directly with peaker plants.
So in sum, California can be a shining city on the hill. They can demonstrate the enormous value of adding battery storage to the grid. They will be able to save billions of dollars per year as they approach 50 GWh of storage, 2 hours of average consumption. This cost savings will be a boost to the state economy. The power market will become more efficient, more resilient and reliable, and better able to integrate low cost renewables. If California can demonstrate this to the world, all major grids will follow suit. And California can export its technology in this space to all the world.
Bangor Bob
Member
I can't imagine it'll be applied to oil or oil products. That's the one commodity which can cross essentially all international borders without import duties, today.
We're importing roughly 8Mbpd, at say, $55/bbl. A 20% import tax generates a potential $88M/day of tax
revenue from oil, but those barrels now cost $66/bbl. So that's going to affect demand. It'll also cause more domestic oil activity, but I think the US economy would still see a net "brake" from such a tax applied to oil - we're not going to find enough production to entirely replace imports with domestic production. Well, not without a couple more Gigafactories stomping demand with permanent substitution...
Wild card: Carbon tax...
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@jhm, a 1MW/4.2MWh Powerpack currently is listed at $429 per kWh on the Tesla website ($1.8M/4200kWh). I assume larger systems with the same MW/MWh ratio would be the same or less per kWh. Am I understanding you correctly that the savings/payoff for a large buy of Powerpacks for this purpose would be somewhere in the range of $1320/kWh, or greater than a 300% return/3X cost savings over a 10 year battery life? Pretty stunning if that's the case.
Let me give the caveat that my calculation is a very simple back of the envelope sort of thing. So utility analysts would have very deal with all the complexity to properly price out all the particular grid services would come into play. But let me run through my simple calculation because it illustrates the magnitude of the total market.
First, I assume that total transmission costs recovered from retail rates are $0.04/kWh. This is near the US average, but California is a massive net importer of power. So transmission costs are likely higher than the rest of the US. So 1 kW of transmission capacity at 50% capacity factor (average load is half of peak capacity) delivers 4380 kWh per year. So at $0.04/kWh this is $175.2/kWpeak/year. So any action that enables the grid to avoid expanding capacity by just kW is worth about $175 in avoided annual cost. Placing batteries at the substation level allows the substation to avoid peak draws on the transmission grid.
Distribution costs are captured at about $0.03/kWh as a US average. So that too is about $130/kW/year. Batteries at the substation level can avoid peak load of transformers. Batteries at the point of consumption could allow the same line capacity to serve more meters. Batteries with smart inverters can support voltage regulation which in NV was priced at $0.009/kWh. So there are many ways that batteries can reduce distribution costs and the total possible cost avoidance would be about $130/kW/yr. Pushing this to the absolute extreme is taking homes off grid altogether. Deep in the outback of Australia utilities are actually exploring this option. (Imagine one home per square mile. Off grid is much cheaper than distribution lines!)
Finally, I recall in 2014 the capacity market price for peak generators was $190/kW/yr. This is an amount pay to peak power plants just to be on call to generate power. Batteries at substation level can be aggregated to provide this service. The inability to generate full power for more than about 4 hours is a limitation that works against batteries in this market. OTOH, batteries with smart inverters can respond in a second, while gas peakers take about 10 minutes to respond. So it is unclear how battery standby power will be priced relative to gas peakers, but let's say the upper bound is $190/kW/yr.
Putting this altogether we've got an upper estimate of potential capacity value for a battery at $495/kW/yr. So clearly there is enormous opportunity to chase. The question is how to tap the complex markets within this huge opportunity. With the Powerpack at $1800/kW good for 10 years, it is chasing as much as $5000 of total opprtunity just as capacity, not counting other opportunities for rate arbitrage.
A well designed project could save thenergy state economy $3B per GW. So getting to 12 GW/ 50 GWh of storage may seem a daunting task, it could cut $36B in the cost of the grid. This would boost the economy in many ways.
Sure. The more I look at this, the more I think that once the utilities figure out how to get economic value out of batteries, things will change very quickly. There is a lot of latent savings, but the way grid services markets are chopped up, it's hard for a very versatile technology to get a toe hold. Basically, the architecture of the grid has never been optimized around batteries. My view is that you want something like constant power level flowing though the transmission grid to optimize utilization of that resource. Then you want batteries within the substations to buffer that constant supply to meet net demand within the substation. This is a radically different architecture from the current.
The power market would be structurally different. Essentially, batteries in substations would bid against each other for a relatively fixed supply of transmission power. They would bid on the basis of how low their state of charge is getting. So this would be a buyer dominant market. Very different from the current situation. Currently, demand is variable but pretty insensitive to spot price. So buyers are price takers while generators bid to sell power. So what I envision is nearly the opposite, where generators are price takers and batteries bid to buy surplus power at lowest price.
So you can see how threatening batteries can become to incumbent players. Thermal generators do not want to become mere price takers. But as batteries compete for cheap power to charge on, that is what will happen. The transmission grid and centralized power generators will basically exist to keep batteries charged at lowest cost.
There is a lot of resistance to this, but as we reach some tipping point the transition could happen just as quickly as battery makers can produce supply. It will massive supply constrained market for a decade.
Jhm, you're doing the best futurism on the utility grid which I've seen. Much appreciated. 
It's clear the battery factories will be built fast. The next question is raw materials supply. This has kind of "gone dark" lately in information terms; I haven't heard anything new in a year.
We know the deposits exist. We know Tesla is making direct contracts with mines to meet demand (particularly for lithium so that they can get hydroxide rather than carbonate). But new mines (for lithium, cobalt, nickel) don't seem to be getting funded.
I'm wondering if we'll hit a bottleneck similar to the silicon shortage which slowed the growth in solar panel production for several years.
It's clear the battery factories will be built fast. The next question is raw materials supply. This has kind of "gone dark" lately in information terms; I haven't heard anything new in a year.
We know the deposits exist. We know Tesla is making direct contracts with mines to meet demand (particularly for lithium so that they can get hydroxide rather than carbonate). But new mines (for lithium, cobalt, nickel) don't seem to be getting funded.
I'm wondering if we'll hit a bottleneck similar to the silicon shortage which slowed the growth in solar panel production for several years.
Thanks for the great analysis. It seems like this article, which is from Nov, would allow what you are suggesting to happen:
FERC Proposes to Open Up Wholesale Markets for Energy Storage and Aggregation
Jhm, you're doing the best futurism on the utility grid which I've seen. Much appreciated.
It's clear the battery factories will be built fast. The next question is raw materials supply. This has kind of "gone dark" lately in information terms; I haven't heard anything new in a year.
We know the deposits exist. We know Tesla is making direct contracts with mines to meet demand (particularly for lithium so that they can get hydroxide rather than carbonate). But new mines (for lithium, cobalt, nickel) don't seem to be getting funded.
I'm wondering if we'll hit a bottleneck similar to the silicon shortage which slowed the growth in solar panel production for several years.
Thanks!
Miners get pretty excited at the prospect of bottlenecks like that. So I expect a lot of speculative capital to flow into mining as the battery market heats up. If the production capacity is present and efficient at transforming minerals into batteries, then a mineral bottleneck simply pits miners against the O&G industry. I suspect that many O&G investors also invest in mining; it's the same sort of mindset. When it comes down to battery minerals vs. oil, I think capital will flood into mining. So I believe that the market will resolve bottlenecks pretty fast. (Another little quirk here is that many miners are starting to use solar+batteries to power their operations in lieu of diesel. So the industry will appreciate the larger economic potential of batteries before many other industries do.)
dc_h
Active Member
If I'm understanding this correctly, if California took all the GF output and installed the first 50GW of TE over the next 18 months, the cost would be about 20 billion, and the first year savings would be 36 billion? This is a pretty amazing ROI for the utility industry, if correct.
If correct, any thoughts on if this would help reduce California's high electric rates? Seems like especially San Diego Gas & Electric rates are very high.
Chinese battery maker CATL buys stake in Finnish car supplier
Here's a small Chinese player to watch out for.
So they are at about 8.33 GWh/year in 2016 and want to grow 56.5% annually over next four years.
It is also significant that the factory will be in Europe. They are not exploiting cheap labor. They must anticipate a large degree of automation just as Tesla does.
To be sure, I'm not worried about Tesla. Rather, I am delighted to see signs of a coming battery tsunami. We need to see many more companies strive to grow capacity more than 50% per year. I'd love to see Tesla strike a deal to build GF2 in Europe.
BTW, plug-in electric vehicles as a share of new vehicles are now 1.45% in China, 1.3% in Europe, and 0.8% in North America. So Europe will definitely need its own supply of batteries soon.
Here's a small Chinese player to watch out for.
So they are at about 8.33 GWh/year in 2016 and want to grow 56.5% annually over next four years.
It is also significant that the factory will be in Europe. They are not exploiting cheap labor. They must anticipate a large degree of automation just as Tesla does.
To be sure, I'm not worried about Tesla. Rather, I am delighted to see signs of a coming battery tsunami. We need to see many more companies strive to grow capacity more than 50% per year. I'd love to see Tesla strike a deal to build GF2 in Europe.
BTW, plug-in electric vehicles as a share of new vehicles are now 1.45% in China, 1.3% in Europe, and 0.8% in North America. So Europe will definitely need its own supply of batteries soon.
The savings is over ten years and depends on how many services batteries are allowed provide. Rolling out that quickly, however, would entail substantial stranded assets, primarily among peak power producers. Ratepayers would likely be stuck paying this off.
I've heard that SDG&E customers have be stuck with the bill for the San Onofre nuclear plant, which had an expensive repair fail and is now being decommissioned. Any yet the utilities can still "recover costs" on this boondoggle.
Over the years, I've seen several reports like this one: Oz Minerals looks to solar to help power $1 billion copper project
I think particularly where grid power is not available, microgrids with solar, batteries and back-up diesel make most sense.
Edit. This too, World-leading solar and battery storage project lures BHP
Bask in the irony of a major coal miner using solar and batteries to reduce operational emissions and cut cost.
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dc_h
Active Member
Thanks for the clarification. I would not expect any real world situation where CA would move to batteries in a year, just wanted to understand your math. Hopefully the process will require a reasonable balance of time to slowly reduce the fossil sources and minimize any sunken costs that need to be absorbed by consumers. I would assume power shipped in from Arizona and other surrounding states would be the first peak power to lose out. That could hurt rates for AZ rate payers, and sadly the Navajo nation, which has a major coal plant on their land. The Navajo have a lot of open land though, and hopefully they can start leasing space for renewable providers.
Interestingly, the out of state imports are pretty flat though the day, like baseload. Thermal and hydro power seems to do most of the adjusting to match supply to demand. Wind and solar just do their thing. I wish I knew how CAISO will classify battery storage. There is not a separate category.
The Oil War Is Only Just Getting Started | OilPrice.com
Let hash this out. This is what I've been predicting for several years.
The oil industry knows that peak oil demand is coming, and there is way more reserves than the world needs. Apparently OPEC has been following a drill at will strategy which has led to the current glut.
I am still shocked to see the industry discuss this in public. This seems like a major shift to me. Perhaps the wackiness of Trump to turn on the spigot in the US is laying bare this oil war.
Let hash this out. This is what I've been predicting for several years.
The oil industry knows that peak oil demand is coming, and there is way more reserves than the world needs. Apparently OPEC has been following a drill at will strategy which has led to the current glut.
I am still shocked to see the industry discuss this in public. This seems like a major shift to me. Perhaps the wackiness of Trump to turn on the spigot in the US is laying bare this oil war.
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