Stephen Lacey: This week, is California the new Germany? California is making news as state regulators take another serious look at retail choice. The CPUC released a white paper this week, documenting the stunning decline of the customer base for investor-owned utilities in the state. Meanwhile, California is facing more and more curtailments, negative electricity pricing, and on top of it all a solar eclipse coming up in August. What can we learn about market design from the nation's solar leader?
Then getting to terawatt-scale PV. Researchers and policy makers are getting serious about thousands and thousands of gigawatts of solar in the coming decades, and they're asking some hard questions about market design. We'll broaden our look at California into principals for market design.
Then we'll tap into the angst in the room, that I think a lot of people are feeling. We're going to have a fast cycle through some of the top news stories, and we'll ask, "How worried should you be?" Personally my angst levels drop a little bit when I'm joined by these two, my two co-hosts Katherine Hamilton and Jigar Shah. Katherine is our political soothsayer. She's based in Washington, she is the co-founder, and a partner at 38 North Solutions, and I think responsible for a lot of the major policy developments that you see happening in Washington that benefit this industry. Katherine, how are you?
Katherine Hamilton: Great.
Stephen Lacey: You're our window into Washington. The window's a little dirty right now.
Katherine Hamilton: That is terrifying, yeah. It's like a peephole. Thank you, it's great to be here.
Stephen Lacey: The co-host with the business acumen is Jigar Shah. He is the president of Generate Capital. He's based in New York City, he's also our resident contrarian. The nicest contrarian you'll ever meet.
Jigar Shah: I'm shocked that it's cooler here in Arizona than it is in New York.
Stephen Lacey: We're going to start off with a couple of big stories that are top of mind, and then we're going to work our way through a bunch of headlines, and try to provide some context to the madness. First up is California. Listeners may remember the conversation we published in March with Michael Picker, the president of the CPUC, who floated this idea to redo retail choice in the state. The last retail choice experiment didn't work out so well, of course but things have changed, and Picker argues that retail choice is already here in California, there just aren't that many clear rules around it, so they want to establish rules. Currently 25 percent of investor-owned utility customers now get their electricity from a third party, and that number could rise to 80 percent by 2020. That's just remarkable.
At the same time wholesale markets are in transition, gigawatts of capacity are getting curtailed around the state, prices are dipping into negative territory with greater frequency, and as we've detailed at this conference there are structural changes underway in the state's solar market, and of course we've seen a decline in the state in terms of residential installations. The belly of the duck curve is getting fatter. What does this all add up to? Katherine, what do you make of the context for retail choice today? Why now? Why is California having this conversation yet again?
Katherine Hamilton: Yeah, one of the key things you said is 25 percent of the load is unbundled from the IOU's, so right there you have almost a million folks signed up as community choice aggregators. There's direct access providers that have been around for a while, and all these policies in place like the 50 percent RPS, the California Solar Initiative, the energy storage mandate, their greenhouse gas reduction goals. All of these combine at a time when we have really ready solutions that are starting to deploy faster than policy can keep up with it. I think what Picker is doing is laying out like, I'm not going to say what it's going to look like. He doesn't have any pre-determined conclusion, but in the end it may be a roadmap he says. Let's start the conversation so we can figure out, how do you do this in a way that's still maintains reliability, allows for a resilient infrastructure, allows for cost effective, and equitable solutions, and also stays within those goals?
That can look like a whole bunch of different things in different places for different consumers.
Stephen Lacey: Jigar, any thoughts on how it should look? There are a lot of different ways you could approach retail choice in California, are there any principles to retail choice you think are important as the state considers this transition?
Jigar Shah: It’s important to recognize how we got here, which is that I had a lot to do with the Kaiser Permanente deal where they did centralized solar, and wind, and then we're having it wheeled to their hospitals. The reason that they were able to do that is because they were grandfathered-
Stephen Lacey: They're wheeling solar to the hospitals?
Jigar Shah: Wheeling through an ambulance. They had a lot of facilities that were grandfathered under the direct access program before it got cut off. Those are the only facilities that are allowed to do that, so all the rest of the facilities they built brand new facilities, are not allowed to participate in that program.
Stephen Lacey: They are paying less for power because of that right?
Jigar Shah: Yeah, and for the direct access projects before they did the wheeling they were at like 10 cents a kilowatt-hour, after it was about eight and a half. For facilities that are just directly on utility tariffs are probably at 15. You can imagine at some point their lobbyist and sacramental is like, "Hey when are we going to have the rest of our facilities be able to take advantage of this thing that we are doing over here, which is clean green energy?" What it's leading to is a tremendous amount of support for this Community Choice Aggregation folks right Marin County, Sonoma, others who are all saying, "Yeah like we’d love to secede from the union." Basically create our own community choice aggregation, where now we have a board, and we have the ability to say, "We want to be 100 percent clean energy if we want to."
There’s problems with them doing it, because they don’t really have great credit, and so figuring how the PPA gets funded, and all that stuff has been difficult. My sense is that Picker was just responding to the politics of the fact that, everyone is calling him saying, "I want to leave my utility. Why does my neighbor have the ability to leave the utility he’s part of the 25 percent, I’m actually not part of the 25 percent and I want in on that action." I don’t know how they get there, if everyone in the state is allowed to drop their utility prices from only 15 to 9, that’s a huge amount of money that gets sucked out of the system. It’s important to know the utilities are fine. California has created some communist regime, by the fact that the utilities are always fine. They're unbundled, they have whatever, energy efficiency doesn’t bother them, nothing bothers them.
They have this protected status Al Harvey and his crazy maniacal strategies. The utilities were supposed to be incentivized to help, but I don’t know that we want to because we don’t really want to. They're in this weird place. I don’t actually think Michael knows what he wants to do, I think he’s just like I’m getting a bunch of pressure, so I probably should say something, and now we’ll start the process.
Stephen Lacey: Yeah to be fair, and that process will begin officially this week, and the white paper really was about laying out questions.
Jigar Shah: Poorly written white paper but yeah.
Stephen Lacey: A lot of good questions though. How do you guys serve low income customers-
Jigar Shah: It wouldn't need Travis Bradford's Columbia university statuses.
Katherine Hamilton: Yeah. Clean Energy Group just released a study on, how do we serve low income customers with solar in California? Their conclusion is, we need more energy storage. Really what we need to so is look at a whole lot of integrated solutions. I’m a big storage booster, but we also need to look at demand response, advanced energy management. All these other tools, and technology, smart inverters that need to be looked at a little more holistically when we are doing planning out there, and that’s where this conversation will get us.
Stephen Lacey: Yeah but isn’t California doing that already right? How is this process different from that?
Jigar Shah: Through a poorly written white paper. Look I think that the diversity of areas in which California has moved, because of this freeze, and direct access, has caused a lot of people angst, because they want it to be more controlled. It hasn’t been controlled, and so they are saying wait a second, let’s bring it back a framework by which we characterize what CCAs are supposed to be for instance. It’s entirely possible that Marin County, or Sonoma, or others actually become more local, and say you know what even though we could save money by being part of a greater whole, we don’t want to be part of a greater whole. We are all going to agree to basically put up $200 million, and become one big fat micro grid for Marin County, because we want it. I think that Picker, and others don’t want that to happen without some planning and framework occurring.
Stephen Lacey: Right. Really important stuff from that white paper, there are almost a million people who are now part of CCAs in California, which is quite striking.
Jigar Shah: There is like another 20 that are on the docket. There’s so much money going into CCA formation right now.
Stephen Lacey: The question is, if you have all these CCAs, and you let them do what they want, how are they a part of California’s resource adequacy requirements? What is their responsibility for ensuring that their procurement benefits the larger grid? Should there be a responsibility, and how do you weigh those as a regulator? That’s one of the big questions that they are asking. Do you let these cities just go out on their own, or do they have to be a part of this broader resource adequacy questions, and paying for the upkeep of the grid for everyone’s benefit?
Katherine Hamilton: That’s in a lot of ways the ISO question not just the utility question, so it’s how does the ISO work within this structure? Whatever the structure ends up being. That’s a big conversation that’s happening right now on a federal level is, how do the ISOs deal with markets? California is slightly different from PJM, from other ones. That remains to be seen, and is the ISO going to grow? We're going to be able to bring in technologies from the neighboring states, and really I’ll be able to participate in a larger market. That is out there too, given that a lot of these consumers are being more disaggregated.
Jigar Shah: There’s two ways I would interject there. One is that the CCAs are basically done down municipal utilities. They don’t really have the responsibility to control the wires that still pitching you, or a CAA, or whatever. They're really just one big aggregation pool with opt out qualities around aggregate the map, and then negotiate on their behalf for electricity, and because of the permanence of them they can actually sign per purchase agreements to have local resources being built. I don’t think they're actually signing up to take on the responsibility and resource adequacy. That term though has become quite loaded, and I would say that even in New York there’s a big conversation happening around whether utility companies are even good at it. What’s happening is that there’s a conversation-
Stephen Lacey: You think they should get rid of the requirement?
Jigar Shah: There is a conversation happening around whether we should get rid of that requirement, because utility companies are using it as a crutch for under educated politicians to say like, "We need another $5 billion, because otherwise we are going to have rolling blackouts." The politician saying, "Well if you really think you need it then maybe we have to do it." All the companies coming to your grid edge conference, or other things are saying, actually we can do it for $500 million, but the utility’s saying we don’t make enough money at $500 million. There's this fight going on-
Stephen Lacey: When you say that we can do it for $500 million, what are you referring to? What kind of alternative solutions are you referring to? Your non-wire’s alternatives?
Jigar Shah: First I think what we are saying is that the utility company believes that they need like N+2 reliability, so that if multiple events occur on their grid, that they can continue to provide reliable power. What we are finding is that the way in which they are doing it, it still has a 1970s flavor to it, and that 1970s flavor is really expensive. Labor costs are up, steel costs are up, cement costs are up whatever. Instead of doing it that way finding out what the pinpoints are in the system, whether it’s 50 hours with the peak demand, or whatever it is, and actually addressing that whether it’s demand response, or load control, or permanent upgrades using energy efficiency. All of these technologies are technologies that have been around for a long time, and sensors are now practically free, so you can do it much more cost effectively than you could 10 years ago.
We’ve been faced with the death by pilot where SDG&E has had a pilot in this, and SCE has had a pilot on this, and others, but they are not actually using these resources in a way that’s systematically providing six nines reliability for the grid and-
Stephen Lacey: They will soon have to.
Jigar Shah: The Public Service Commission is trying to figure out how to force them to, because they're not properly staffed to be able to provide them with a clear guideline saying, "You must do this." They're saying here are the broad market roles, which is what REV was trying to do in New York saying, "Under these market roles you're incentivized to give us better ideas." That’s not working, clearly REV is not working. They are now saying, "Well maybe we should just get rid of the requirement of the utilities to provide high reliability power, and just like RFP that out to the private sector."
Stephen Lacey: I can imagine a number of utilities rolling their eyes in this room right now.
Jigar Shah: They're rolling their eyes all the time, but that’s what losing all the time means, is that you finally end up going, crap we should actually do something about this one day.
Stephen Lacey: What I don’t understand is that, how you can sit there, and say they should be doing all this demand response load control. A lot of the, I think somewhat untested residential demand response, demand side management as far as California is trying to deploy it. What you're saying is that a proven resource adequacy tactic, is worse than something that is still largely unproven on the scale that you're talking about.
Jigar Shah: I’m not saying anything except to say that increasing people’s electricity rates by 5 to 7 percent a year is unstable. The politicians will lose their job on a regular basis if that continues, and we have technologies that I believe are pretty stable, and that GE, and Siemens, and others have actually bought some of these companies, because they believe that they are stable. We have proof points Enernoc really did save the entire PGM and new pole grid with wave during the polar vortex. I don’t think that like spending $2 billion on a new gas pipeline into the city of Boston, is going to be the most cost effective way to provide reliability in that market. You start to have these conversations that resemble a pattern, and they happen over, and over again to the point where you start to get through to regulators, and others who say actually the stuff that Katherine’s been talking about for 15 years might be a good idea.
Katherine Hamilton: You need to change what they're rewarded for. You have to change it to be performance, and you can change those metrics. Part of it is they don’t necessarily have all solutions, the utilities, but there are all these third parties out there that do. Try to figure out, how do you make this work, where everybody gets to benefit the utility knows what they're being rewarded for, and how they stay in business, and what their business really is.
Jigar Shah: In all this stuff Picker wants to live PV’s legacy behind right? PV’s legacy in California has been let’s build as much expensive stuff as possible to make the utilities happy, and let’s do all the innovation to make the innovators happy, and that’s a recipe for high costs. At some point the innovations have to offset the old school stuff, and that’s not happening. When you look at the LCR contracts in Southern California territory the reason that was held back for two years under lawsuits, was because Southern California Edison wanted to rate base two large natural gas plants in that same docket. The eight contracts that were approved there with AMS, and Stem, and Evaporcool and Ice Energy were bundled with two big natural gas plants that weren’t needed. That everyone knows are not needed, but they're saying is needed and it’s like well whatever its two billion bucks let’s just rate base it.
$2 billion dollars even in California is a large amount of money. At the same time Calpine, and others who are on the private sector side are shutting down natural gas plants, because there’s not enough market signals within the California ISO to keep them open. We are getting closer to an existential crisis in California around business as usual, and Picker is trying to figure out, how do I do this without upsetting the applecart too much?
Stephen Lacey: I want to ground the context here, and then I do want to talk about wholesale market design, which is another issue that California is dealing with, and expansion of the regional market to manage some of the utility scale solar that is getting curtailed. I was struck by this conclusion in the white paper that I thought was actually pretty remarkable. They said, "As a fundamental framing consideration, it’s crucial to recognize that whatever the specific outcomes, it is very difficult to conceive of a scenario where the CPUC and CEC will not find that significant changes to the regulatory model on the utility structure are required." This is a very uniquely California approach right-
Jigar Shah: You were struck by a statement that was so obvious.
Stephen Lacey: Let’s be clear here, a lot of states might say we have this problem, how do you slow growth, not how do you accelerate it. That’s a unique California approach to proactively managing a problem as you say in existential crisis for California’s grid. I do think that’s a unique approach.
Jigar Shah: I love California and I’ve certainly made a lot of my money in California, so I thank them for that. I think that the notion that California has come to this through leadership is crazy. California basically has been the poster child of what not to do on the regulatory side. They're great on innovation, they're great on all sorts of stuff, but on the regulatory side like New York was forced to come up with its own model, because California refused to do so.
Stephen Lacey: We have no idea how New York’s model is even going to work.
Jigar Shah: It hasn’t worked.
Stephen Lacey: How can you call it a success?
Jigar Shah: I’m fully admitting that it hasn’t worked yet, but I just think that California has pushed off this decision for a very long time. They said, we are going to do unbundling, we are going to do this, and we are going to do that. Now they're faced with the fact that, the Kaiser Permanente, or Walmart, or others actually have the ability to bypass the utility altogether. They actually have the ability to just build solar in the middle of the desert, and wind, and actually just like wheel it to them, and all of the essential functions of the utility are becoming less, and less essential, to the point where they are actually dismantling the purpose for the utility to be there. If they don’t quickly put in a new regulatory regime by which the utility becomes buttress again.
It’s entirely possible that California will accept to merge everything together into one big reliability organization, and they just merge PG&E, SCE, SDG&E, and everybody else together into one company with the California ISO, and say we are now basically just a reliability organization, and everyone can do whatever the hell they want. That’s where we're headed if everybody becomes a CCA, and they start having their own financial ability to try sign PPAs, and other things, then what is the utility left to do except to basically serve the poor, and the elderly?
Stephen Lacey: This is a new phenomenon. Planning for this five years ago is completely different than talking about it now.
Jigar Shah: They could have predicted this five years ago. We're all talking about it on the Energy Gang four years ago. Like they could have absolutely predicted this four years ago, and now Mike is finally saying, "I guess I kind of have to do this sooner rather than later." When he was on the Energy Gang we talked about this. Literally if you listen back to that episode we were like, "Hey you have this job because PD refused to do this. Are you willing to do it?" He’s like, "Yeah I’m going to take real leadership in this." Now he’s finally kind of saying, "Okay fine, I’m forced to do it."
Katherine Hamilton: The cost of solutions have also been falling dramatically like 18 months 75 percent reduction in lithium-ion batteries, and it’s just going to continue to go over the next couple of years lower and lower. I think part of that is because California created a market for it through a policy specific to energy storage. That’s part of what they’ve done, is they’ve done all this individual technology specific-
Stephen Lacey: Everything segmented right?
Katherine Hamilton: Yeah. Different policies that have created a market, and created the ability for people to come in, and drive down cost of technologies, and now they're ready to deploy, but now we got to figure out how it’s all going to work together, or not.
Stephen Lacey: Any thoughts on whether this will be a successful transition on the retail side. I know it’s incredibly early to say, but Jigar you're not very positive about the factors in California, so does that influence the outcome?
Jigar Shah: I’m very positive about California. I don’t understand what retail means. I don’t think they're going to say direct access is now open for everyone to access. I think they're going to broaden the definition of retail.
Stephen Lacey: Also establish clear rules for cost shifting and upkeep of the grid?
Jigar Shah: Right. The retail thing is a red herring, but I do think that the thing that makes me hopeful is that California has by far the smartest people in the world on these issues. They all live there, and they are engaged, and they are like the intellectual horsepower is available when they're ready to make these changes to actually come up with a negotiated settlement on how this would look. Then once it’s in place, you have institutions that are paying people to make sure that it gets implemented properly. In a way that New York has intellectual horsepower for instance, but I don’t think they actually have people that are paid to monitor the process for the next three years, to actually make sure it gets rolled out effectively. New York is not as prepared to do that as California is.
Katherine Hamilton: What we don’t want to have happen is what happened in the last energy crisis in California, where you had taken the genie out of the bottle, and they stuffed it back in, and now its back out. I don’t think we want to stuff it back in, because then you're just feeding into the narrative that brick pairing the fossil incumbents are saying, which is, "Well you got to have this load cause all this other stuff is just creating all kinds of problems." We don’t want to have that to happen, but what’s different is what Jigar said, which is the consumers are much more engaged, and this is lifestyle choices. This is about like I’m a smart consumer, and these are things that I want, and these are things that I demand, and that’s changed dramatically over the last two decades. That’s where we are going to see the difference, and that’s why we're not going to be able to put the genie back in.
Jigar Shah: Then just one shout-out is, I do think that the work that Julia Ham has been doing at SIPA on this 51st state regulatory work, has I think really moved the ball forward in a big way. I think that when you read all the white papers on their website et cetera, it’s starting to give folks who are smart, but not engaged in this the lay of the land of like well here are the eight different ways this could go, and here are the pluses, or minus between the eight different ways. Which is much better than I think where we were when REV was started.
Stephen Lacey: Yeah I think the REV process has been helpful in this as well, because you’ve had so many competing proposals, and ideas that have been thrown out there for the first time.
Katherine Hamilton: Everybody is learning and other states are learning too.
Stephen Lacey: I think your point on the base load study is actually really important is that, this is a broader conversation than California. California isn’t just facing potential retail and wholesale market crisis, there’s a broad political context to this. They are proving to the rest of the country that they can manage this amount of distributed renewables in a cost competitive way. If they can do that in the next couple of years, that will determine the way that people talk about this stuff through this administration, and beyond. I did want to talk about wholesale market design, the last point is what does California do to expand its grid? Should it expand its grid to accommodate more utility scale renewables that are now getting curtailed? This is a big issue as well.
Jigar Shah: It is something that will happen. I have said multiple times that I don’t want it to be the first move. California for better, for worse requires some crisis small hopefully that occurs to get them to do the right thing. There are a lot of tools at their disposal on the demand response load control side, that would allow them to have a better functioning wholesale market. They also have a lot of endeavors around controlling electric vehicle load, which have not actually been realized. They’ve got battery storage, which still doesn’t have a clear market signal within the California ISO, as to how to get paid to participate in that market. You’ve got a lot of these opportunities, and I don’t want them to continue to languish, because we're just going to increase the balancing area to include Oregon and other states I’d rather them actually get this distributed innovation right, and then increase the balancing area.
Stephen Lacey: We're going to talk about PV at the terawatt scale, and maybe apply some of these lessons in California to the county as a whole, and the market design broadly in countries around the world. The situation in California is forcing a lot of people to think deeply about the future of electricity market design, and with the global terawatt scale solar market looming right ahead of us, the hard choices that a few states, and countries are making will be made all over the world. At this conference we're largely focused on the here and now. What’s going to impact your business right now. It’s helpful to expand our thinking to imagine, what happens when you get to say 20 percent global electricity generation from PV in the next couple of decades. We're seeing more, and more research and planning on this front.
Just this month a group of global researchers put together by NREL published this piece in the general science looking at where solar, and storage cost need to be in order to get between one and eight terawatts of solar installed. Interestingly their estimates they're in line with technological and market design progress. The investment bank UBS, recently put out a report saying that solar would be the default resource in most countries around the world in the coming decade, beating out coal, gas, and nuclear. We’ve seen similar analysis from a bunch of other outfits, and the International Energy Agency historically extraordinarily conservative now believes that solar will become the dominant source of electricity by 2050. Given its assumptions about solar growth, we can probably say that that may be somewhat conservative as well. Of course Shayle Kann talked about this in his opening presentation yesterday.
It’s something that we're thinking about at GTM, because we are faced with some of these massive scaling challenges now. I guess what I want to know is what the world looks like without much solar right?
Jigar Shah: It will be a sunny place.
Stephen Lacey: It will be a sunny place. Are we on a path to making solar our default technology? Is there a good way to set it up? Do you believe in what UBS, and GTM research, and others are saying about solar really taking a massive share of electricity generation.
Jigar Shah: Of course, we do. We wrote it in black white in 2007, and now folks are copying what we wrote back in 07, so I feel good about that.
Stephen Lacey: One anecdote I do like to share is that, Greenpeace put out its revolution now report in 2006.
Jigar Shah: While I was on the board.
Stephen Lacey: They showed extraordinary growth rates that everyone laughed at, and if you look at IEA, and EIA scenarios, and others they were really slow, and then turns out that the Greenpeace's projections were below the growth rates that we saw for 2016.
Jigar Shah: Travis Bradford’s in their front row here and Travis wrote the book literally Solar Revolution, which predicted all this stuff back in 2004. I remember buying him beer in Apps at the Capitol Hill brewery across from Greenpeace's office, and we were talking about this in 04, and 05, and doing all that stuff. Then Travis's organization became Greentech Media Research like when they merged into GTM with the Prometheus Institute. We’ve been talking about this for a very long time, I’m glad that all this other people have now validated our work, and all the work of the people in this room. Give all of you guys a hand, because this is why we're here. Look, I think that there are a lot of people out there who believe that we are in this place right now, because solar was inevitable. Solar clearly had certain benefits around capturing imagination, and then having a lot of folks who are rooting for it.
It wasn’t inevitable, there was a lot of work that we all did in business model innovation, financial innovation, policy innovation. We did a lot of work on-
Katherine Hamilton: R&D.
Jigar Shah: R&D, technology. When you look at like the exhibition here at this summit, there’s a lot of enabling technologies around reducing soft cost, and sales, and engineering, and all of those things. I think that’s why we're here. I think that the countries around the world who are deploying this stuff at scale, whether it’s China, or India, or others are absolutely using US technology that’s being shared with them, to be able to integrate solar into their grids, to be able to figure out how the policy mechanisms can best work to attract billion dollar scale money from international institutions to be able to like come into there. Whether it's from OPEC or ACSM. I think that I’m very proud of the fact that this group actually come together, and validated our industry’s work. I do think that if the work continues it will take a tremendous amount of work over the next 10 years to be able to meet the conclusions of this report.
Katherine Hamilton: Some of the things they say have to happen to build on what we have as cost continue to come down, performance go up. The cost of manufacturing and installation going down, having more flexible grids to be able to use all these resources. The continuing rise of demand for electricity, so switching so that we are having more of an electrified future, and then also progress in storage, but I would also argue a lot of other technologies to continue the progress. There things that we don’t even exactly know how they are going to impact it, like how is blockchain going to function in this. There are some things out there that can really provide step changes that we don’t know about, and all of these we still need to really consider the human impact all along the way.
The human impact on the jobs, human impact in consumer engagement, but also the human impact of people who are currently working in industries that are dying, or manufacturing sectors that are dying. How do we take care of those, and how do we make sure that we bring everybody along with us?
Jigar Shah: Also the sustainable development goals, and how like this expansion of 5 to 10 terawatts is actually going to bring 1.3 billion people electricity, that they badly need to improve their lives.
Stephen Lacey: We’ve talked a lot about this on the show whether, or not people are recognizing the economic competitiveness, and enormous growth in the industry. What they see is that one chart that’s out there that shows solar represents 2 percent of the electricity mix, and 2 percent of the global electricity mix, and are not really looking at project level economics, or some of the more local factors that are contributing to an expulsive growth in the industry. Jigar argues like finally this big institutions are recognizing what people have been saying for the last decade. Are decision makers starting to recognize that, or are we still years behind that narrative taking shape in a meaningful way? It feels like it is way behind.
Katherine Hamilton: It depends on which decision makers you're talking about. In some parts of the world yes, and if you look at the Paris agreement holistically people are all kind of moving in the same direction. There are going to be some bumps along the way, right now we are in a little bit of an unknown territory in the US. Globally though everybody is going the same direction, and this work that I’m doing in the World Economic Forum a lot of the oil majors are in my cohort, and they are all saying the same thing. Everybody’s saying it’s going to be very distributed, it’s going to be more solar and-
Stephen Lacey: Are they interested in solar?
Katherine Hamilton: Oh yes.
Stephen Lacey: They seem to be more interested in wind, and offshore wind.
Katherine Hamilton: No.
Stephen Lacey: Are they talking about solar?
Katherine Hamilton: Yes very much so. Solar storage, very distributed resources, and also ensuring that there’s access. It’s an opportunity for people who don’t have access, but also an opportunity for business development certainly it’s all the billions of people who don’t have electricity, or do not have access to.
Jigar Shah: The one thing I think came out of this report though, for me is that we have been having a lot of energy nerd arguments on Twitter, and other places around whether solar, and wind can actually get there, and nuclear and like whether we're all like just fundamentally bad at energy engineering. This report put that to bed. This report basically said-
Stephen Lacey: The NREL report you're talking about.
Jigar Shah: With Fraunhofer, and others. I think those report basically said that, "The innovations necessary to integrate 80 percent penetration of renewables will come online at the time that they're needed." That they're not necessarily at full maturity in 2017, but that as we reach higher, and higher penetration levels, that those technologies will be maturing at the same time scale, and will be available to be integrated at the appropriate time, such that we’ll be able to hit this high integration numbers. Which is something that I don’t think the MIT folks are saying, I don’t think that some of the other folks who have been detractors of this vision have been saying that, they’ve actually been introducing doubt into that vision.
Stephen Lacey: Totally disagree. What doubt are they? They're saying that lithium-ion batteries, diurnal storage, solar, and wind can get us most of the way, but you need some flexible base load, and grid management technologies to get the last 30 percent of de-carbonization. I don’t think this report made a judgment on that at all.
Jigar Shah: The detractors are saying that while those technologies may technically exist, that they are not actually cost effective to deploy, and that a more traditional framework of base load integrated with variable renewable energy would be a more preferable outcome. I think that that is something that like whether it’s true or, not although I don’t think it’s true. Whether it’s true, or not there’s no political support for a pushing that vision. There’s certainly no political support for pushing that vision in India, I don’t think there’s any support for pushing that vision in Brazil, now that you’ve heard so many challenges with AREVA and EDF. I don’t think you see a lot of support for that vision in Europe. I do think that NREL and Fraunhofer are basically saying that, this vision of having a more familiar looking grid that’s de-carbonized from the 1970s is not something that we are on track to reaching.
In fact, we are on track to reaching 5 to 10 terawatts of solar, which will be paired with wind, which will then be paired with this technical solutions, and will actually get us to high penetrations of renewables. It’s important for us to say that emphatically, so we can get to the business of figuring out the policy hurdles, and the finance hurdles, and all the other stuff that we need to support that vision.
Stephen Lacey: You're assuming this rational approach to market design, and policy that, because these technologies are ready to go that they’ll scale up accordingly with cost. We just had a conversation about the mess in California. Whether or not the technologies are ready, we have to have a smart policy design, they didn’t make a judgment on the market design itself. If these technologies are ready you can still have a super messy market, and you can do it the wrong way.
Jigar Shah: It’s not about being messy. Nothing about my life, or this industry trajectory has been rational, so I don’t think that there’s like a presumption of rationality. What I’m saying is that this introduction of doubt around whether the technologies are really ready to support this high penetration framework, causes us to have to do 10 times amount of work on our side to overcome that doubt to be able to win in these public service commission’s, and in these planning documents. It would be far better for us to be able to settle this issue on the technical side, so that we can get to work on focusing on, how do you deal with inequity issues, how do you deal with like some of the other things that we have to do to get UBS not only to the reports, but actually inject a bunch of money.
I think that it be better if we can just settle this, as opposed to continue to argue the technical stuff, and then we never really get to these other pieces, because the other pieces only come from those parties when they believe the technical pieces are settled.
Stephen Lacey: There are some things that we're living out here, we're talking about real time balancing, day to day balancing. If you have 20 percent solar, you have major seasonal swings in solar generation. During the middle of the winter solar generation is going to be completely different than the middle of summer. You need to start thinking about things like seasonal storage. How do you shift industrial processes? How do you develop power to gas? Is it underground storage? That’s the type of stuff that folks at MIT, and the people who you're calling detractors are thinking about, and they are saying like we can’t solve this with variable wind, solar, and lithium-ion batteries, we just can’t do it. We can do a lot of it but we can’t do all of it.
Katherine Hamilton: Why would you need to prescribe that? Why don’t you just say, we need this type of characteristics, and this type of performance, and come, and bring your solutions, and make the market actually competitive, and let people come and bring their solutions within certain parameters, but not be prescriptive about what you put out there. You could combine wind, and solar, and a bunch of other stuff too, but it doesn’t mean that you have to tell people that that’s what you need.
Stephen Lacey: That’s the hope right? California was being prescriptive. California it's one of the original bills that was proposed was 100 percent renewable energy right? You're being prescriptive about the types of technologies you want on the grid and you don’t want that.
Jigar Shah: I’m not worried about that piece of it. California has been prescriptive around what the technology gets SGIP rebates. That’s the more prescriptive part of California. I’ll give you an example of what I think Katherine saying that, "It is not happening." Walmart has decided that they are going to convert all their forklifts at their distribution centers into fuel cells. Amazon just announced a $600 million deal with Plug Power to do the same thing. Those fuel cells are getting hydrogen that’s getting delivered to the site from Praxair. Instead of actually doing that, if they actually just had an electrolyzer on site, they’d actually just converted water, or something like that into hydrogen. They just did it every time wholesale prices became negative, or low they said, "Great we are going to make hydrogen on site."
The cost of actually storing hydrogen at their facility is practically zero like whether the tank is this big, or it’s that big doesn’t matter. They can do that, but there’s no price signal by which they can get paid to do that. They have no access to wholesale power via the wholesale power markets to do that. All of these technologies whether it’s that specific one I just mentioned, or the other 50 that I didn’t mention, don’t really have the right to complete their vision. The same thing is true with electric vehicles, electric buses, electric garbage trucks. All of these technologies that frankly are being deployed at scale in China, but aren’t being deployed at scale in California, don’t really have a process by which to be done.
That to me is the part that I’m frustrated by, because instead we are arguing about whether solar and wind should be scaled up, versus natural gas, fast ramp facilities, or whatever it is, as opposed to arguing about how we actually have this competition around the integration services, which is what Katherine started.
Katherine Hamilton: How can you monetize all those stacked values?
Stephen Lacey: We got to get into the third topic here, which is a roundup of some of the new stories that we're following here. I want to help people understand how they should feel about some of the uncertain news. Yesterday we talked a lot about the trade case, and we got some great information from John Smirnow and SEIA. I do want to start with that, so let’s go down rapid fire here. Katherine how worried about the trade case should we be?
Katherine Hamilton: Worried. I was really glad to hear both John and Abby yesterday talking about this, and SEIA really stepping up, and making sure that we're protecting the industry, because it’s really important. I hope they don’t take it up I’m not a trade expert, but I definitely think it’s something that we need to invest in, and make sure we stand up for the industry.
Stephen Lacey: Jigar?
Jigar Shah: We're not on track to solving this and everything. For those of you in the room who have something that you can contribute to trying to figure out how to solve it, we desperately need you. This deal is going to come down to the next three weeks, and we're not even close to figuring it out.
Stephen Lacey: Tax reform and a change in tax policy, how worried should people be?
Katherine Hamilton: I always say, "Ahab sharpen your spear the white whale is coming soon." It’s like tax reform really, we make it a corporate tax cut that may be true. I’m hearing there may be some appetite of doing a little bit of repatriation in exchange for some infrastructure funds, and infrastructure some kind of a tax credit. That would be really fun to work on. That’s what I think of as an opportunity. As far as the tax credits go, people do not want to raise that issue again. Everything I’m hearing even from the chairman way means is like, you guys were done as Abby said we were already reformed.
Stephen Lacey: That's a good line too.
Katherine Hamilton: We’ve been tax reformed, we have. The 10 percent in perpetuity, if they really want to nickel and dime that, maybe something they go after, but I haven’t heard any of that talk in various serious terms. I think that is less of a concern than what is the general tax structure going to be like.
Jigar Shah: Two words special prosecutor.
Stephen Lacey: Jigar, the decline in growth in the solar industry more specifically the residential solar industry?
Jigar Shah: It shows a real luck of leadership on the solar industry’s part to reallocate their resources. They’ve just gotten so lazy with the decisions that they made the last three years, around where to chase customers, but they haven’t unlocked more niches. There’s a lot of people who are suffering under unbearably high electricity cost from utilities who are mismanaged in this country. We’ve got to figure out how to continue to innovate in our industry to serve those customer bases, whether it’s low income folks who have great FICO scores, or whether its affordable housing complexes, or whether its other folks. We’ve in fact gone the other direction we are now like, "Well we don’t want to do CNI unless it’s a minimum of 7 or 50 kilowatts." When did that happen? How did we get to being an industry who doesn’t want to deal with 50 to 100 kilowatt churches, or 200 kilowatts on reasonably sized rooftops?
Suddenly all of those projects are persona non grata, and like those are all growth opportunities as Nicole Litvak has shown through her work, and others. I think that if we have a growth problem in this country, it’s because we have a leadership problem within our industry around reallocating sales resources towards customers, who are in more pain than the ones that they’ve been chasing the last few years.
Stephen Lacey: Katherine, Rick Perry’s base load study?
Katherine Hamilton: I’m not as worried about that as the trade case, but I am still worried about it. I think it’s one of those things that creates a bunch of faults; it asks the wrong questions, it creates a bunch of false narratives about base load. It drives people apart, it’s going to come up, we know what the conclusions are basically going to be, and it’s just a drip, drip, and the next thing you know you got the Grand Canyon. We need to really push back hard, we need to make sure that we have the facts ready to go, and the right bibliography is ready for people to see, so that this doesn’t trickle down into Fark, and into congress, and EPA. They're kind of all on the same page about what they want to do, and the fossil plants that they want to prop up. At the same time DOE is doing a flexibility workshop in July, and I know a bunch of people submitted abstracts to present there, and they're going to do a report on flexible resources, so that’s good.
I think maybe that the people who are writing the base load report are less aware of that effort that was already ongoing, but I’m a little worried about it.
Stephen Lacey: Jigar, actually go base load study first. Do you care?
Jigar Shah: No it’s not a defined term.
Stephen Lacey: It is a term that exists though. You have said that it doesn’t exist, our listeners sent us a textbook with the term base load in it.
Katherine Hamilton: I'd like to get rid of the term.
Jigar Shah: Base load, it literally is not a defined term. In general natural gas generators, and coal power plants have so many unplanned outages, that they're not actually the reliable generators everybody think they are. There’s all sorts of planning that has to be done around having backups, and this and that. I’m tired of folks like with this false narrative around these technologies are foundational technologies, they're really like are the backbone of the grid and these other ones are not, that’s just all horse shit.
Stephen Lacey: California’s solar eclipse, how worried should we be?
Jigar Shah: It’s a great teaching moment. We should all have those like things where we like little paper things.
Katherine Hamilton: Everybody goes outside with-
Jigar Shah: We could look straight at it. I think it would be fun.
Stephen Lacey: They're going to lose what 80 megawatts a minute something like that? I can’t remember what the number is, but it’s a lot, and then ramp up nine megawatts.
Jigar Shah: It’s a lot.
Katherine Hamilton: Germany handled that right.
Stephen Lacey: Yeah.
Jigar Shah: I certainly don’t think it’s going to be a problem this time around, and I think in the future it could be mitigated by having greater coordination with Bonneville Power Administration. The corridor between British Columbia and California for hydropower is gigantic. The fact that Bonneville Power Administration refuses to have any rational conversations around how to use the grid hydro battery, to provide balancing with California is ridiculous. I’m hoping that the curtailment in California in the next 12 months, will force solo owners to actually pay somebody, instead of sitting back on their heels to create an actual working group to solve this politically. This really just requires the two senators from Washington and Oregon to threaten the Bonneville Power Administration treat his job, and say look, "If you don’t figure this out, and don’t stop spreading misinformation, we are going replace you."
Then when he's like, "Oh actually I don't want to keep my job." Then you start getting in negotiation with Jerry Brown, and then there’s actually a deal that gets struck. It’s ridiculous that we are having this conversation at all. This is something that we know how to do. NREL did a report on how to exactly do this five years ago. NREL's report was actually written for how to integrate 10,000 megawatts of wind into Washington state, and Oregon, which Bonneville said was not possible, but that same exact report answers this question.
Stephen Lacey: Katherine the Paris climate deal, will the US exit or not?
Katherine Hamilton: If you're really trying to be rational you would say it would be completely foolish senator Murkowski who is the chair of Senate Energy and Natural Resources, is going to talk to Ivanka about it. I don’t know what difference that will make, because it’s the president that makes the decision, and he’s capricious. I don’t know how they are going to do it. Tillerson is out there pretty much saying things that would lead you to believe that we are on track to stay in. I think it’s like a crisis that would be of our own creation that we don’t need to do, but boy we’ve been doing a lot of that recently. I don't know, I hope we stay in.
Jigar Shah: While Ivanka’s selling her wares let’s talk about energy policy.
Stephen Lacey: All right. We need to wrap up the show. Is the Tesla roof going to be just a luxury product, or eventually a mainstream energy solution? What do you think Jigar? Obviously a luxury product still unproven, but is it a meaningful product long term?
Jigar Shah: Yeah I think it is. I don’t know whether they win in the BIPV space, but I definitely think that there are a lot of potential solar home owners who want something that looks more integrated into their roof, than the traditional solar PV system that I think is beautiful. I do think Tesla is doing an extraordinary job of bringing a product to the table that my parents know about. That’s good. Hopefully when my parents decide what to buy, they’ll actually choose between three or four different BIPV providers not just Tesla sunroof. I think it’s a good development.
Stephen Lacey: All right let’s tell our listener something they don’t know to finish off the show Katherine what’s your story this week?
Katherine Hamilton: There was a Brooking's report that you all covered in GTM on clean tech VC investment going down. VC investment in clean tech has taken a little bit of a roller coaster ride anyway. It went up after Gore’s book came out on climate, and then it took a plummet in 2008 during the financial crisis, and it’s been coming back up, and it’s taken another dive down. Part of this is, it's less money, the size of project says declined, the number of deals have gone down, and then also what’s been funded would come to fruition with much shorter time horizon. It’s a lot of software solutions rather than hardware solutions. I think to me this leads to really making sure that we prop up the R&D funding at RPE, and the labs at NREL at the universities to make sure that we continue coming out with innovation, because if the VC sector isn’t going to take that on we still need the government to be involved to make sure we have solutions in the pipeline.
Stephen Lacey: Jigar what you got for a story?
Jigar Shah: Two things, one is several of us in New York City have started a CEO dinner group, which we are going to probably be rolling out to San Francisco, and DC here pretty soon. I do think that this industry does a really poor job of thinking about its broader responsibilities around whether it’s a 5 to 10 terawatt goal, or others like how we actually act like the business leaders that we believe ourselves to be, to have a broader responsibility to our communities, and just growth of our companies for 25% a year, or whatever. That’s happening if CEO’s are interested in participating they should just send me an email about that. The story that I want to talk about was Ford announced that they were going to cut 10% of their global workforce. The explanation that they gave for it was around like used cars, and the over hanging of used cars, and new cars.
The other piece they’ve been talking about is they really do believe that their entire business model is going to be disrupted by Uber left, and car sharing, and self driving vehicles, and that kind of stuff. I thought that it was a really big deal that they said, "Okay we need to start shoring up our company so that we’ll be relevant in that world. We have to free up this money to invest in innovation." It's stri
