Tom's Comments

As I mention in the article, WNDEF did show a profit in 2010. Much of that was a government cash grant, but there are more and bigger cash grants in the pipeline- that's a large part of the value shown for the Kingman and Windstar wind farms.

Please allow me to decide what my own purpose was in writing the article.

Billtoe-
Regarding the quote, I agree it is awkward and seems to be self-contradictory, but it's a quote of Spencer Hempleman, so your quibble should be taken up with him,not me.

What I mean by "Structural" is "inherent in the industry structure" and "not likely to be self-reversing" while what I mean by "cyclical" is "inherent in the business cycle, and likely to be mean-reverting." Hope that helps in terms of the definitions.

mitch3-
The cost advantage of Demand Response over most storage solutions is currently enormous for short-term, infrequent dispatch, and the cost of DR is likely to fall at least as quickly as storage costs since DR is IT while storage is bounded by chemical and physical constraints.

GeraldR- Excellent points, I've nothing to add.

Nigel-
Molten salt thermal storage probably does not make sense for most direct use thermal storage except perhaps in some high-temperature industrial operations because it requires a minimum 350C operating temperature. Usually processes that need this much heat are fossil fueled, so there is no need for storage.

The Ice storage systems you're referring to are the central thermal bubble on the chart, labeled "HVAC"

etcgreen,
You're right, I already knew the answer when I asked, but I get into arguments about this with people fairly often, and it helps if I can back up my theoretical understanding with someone your real world experience.

Also, you discussion of solar cloud transients confirmed what I already knew, but the specifics (regarding maximum array sizes, etc are interesting.

Derek,
The viability of windfuels will all depend on conversion efficiency. The article you cite talks about a 58% conversion efficiency, which will give them a very small bubble size, a little smaller than the H2 bubble on my chart. The good part is that liquid fuels are very easy to store, which will put them on the right of the chart, and we have an existing infrastructure to use them well, which will put them towards the top.

So, while the position of the bubble will be very good, the size of the bubble will be small, meaning that Windfuels will only be practical with very low cost electricity. The question then is, who is going to build a wind farm to sell electricity at very low prices? No one. And that means that wind fuels will only be viable for the short time each year when there is an excess of electricity. That's fine, so long as the equipment to make wind fuels has very low capital cost. High cost capital equipment needs to be operated much more often in order to produce an economic return... which is exactly the problem with most EV technologies: the batteries need to be cycled several times each day to me competitive with conventional cars that have lower capital cost.

etcgreen,
Thanks for your comment. Given your experience managing a diverse set of wind generators, would you agree with the point I've made in many other articles, that while wind does require backup (build a gas plant first), a diverse portfolio of wind will require less backup than and equal amount of wind all operating in a single farm?

Good point, Richard. The GOP hardly has a monopoly on the ability to ignore evidence when it's inconvenient. Apologies if you were insulted when I left you out in my enumeration of the self-deluded.

I appreciate your ability to see past our disagreement about climate and find some benefit in the article, although your faith in market forces to always find the best answer in the long run is another point of disagreement. That only applies in efficient markets where price reflects all costs. Given that the energy market is one of the most heavily regulated and subsidized, it's a far cry from efficient.

Tom

Bob,
That's a good observation. Such risks are worth paying attention to. Fortunately,if a company like GE is the backer, there are already financial instruments available to hedge that risk: Credit Default swaps.

You can use IRR in this situation, and still make a good decision. The way to do it is to assume that you have $40,000 to spend, and calculate the IRR on the PPA plus whatever the rest of the money is invested in. Or you can assume you only have $5000, and look at the next cash flow from ownership after you borrow the money to pay for the whole system.

Chris,
Reading the article made me realize that there is another reason that the ROI for an investor using a PPA might be higher than the ROI of ownership: it's a smaller investment. If you're earning 30% on a $1000 down payment, that's only $300/year. If you can instead earn 15% on a $40,000 investment, you're getting $6,000 a year. Clearly the latter is the better investment, even if the ROI is lower.

The key here is that we're using the wrong financial decision making tool. In order to make a good financial decision, we should look at the net present value (NPV) of the two investments, not the internal rate of return (IRR, which you were referring to ROI.) Of course the PPA suppliers want you to make that mistake, which is probably why they spend so much time talking about "return on investment."

In essence, the homeowner has to make a capital budgeting decision, and has to use the right financial model for the job. Unfortunately, the only people equipped to do this are people who have taken a capital budgeting course... typically MBAs or financial analysts.

Here's the relevant chapter from Investopedia:
http://www.investopedia.com/ask/answers/05/irrvsnpvcapitalbudgeting.asp

sfortuna,
You may also want to take a look at my mutual funds overview article, located here:http://www.altenergystocks.com/archives/2011/03/choosing_the_right_clean_energy_mutual_fund_or_etf.html

GeraldR said "Tom Konrad is he's too logical." I'm afraid I have to agree with you. I do approach the world as if ti is a problem to be solved... I have a tendency to lose sight of the fact than many prefer to pursue their short term self-interest, even when it flies in the face of the long term greater good.

Geographic diversification is a vision of a better world which does not yet exist. All I've shown is that the potential is there. Is our political system capable of seizing that potential? I have my doubts.

Tam,
As usual, CA is way ahead of the rest of the nation. I'd be willing to wager John would not have written the article if he had been looking at CalISO data, not BPA data.

rif,
This is far from the first or the last study... and there was a site online (energytiming.org) put together under a DOE grant by the people at HOMER Energy http://homerenergy.com/ they told me they took it down because of lack of interest but I wrote an extensive article using the tool on seasonal timing which you can find here:
http://cleanenergywonk.com/2009/11/17/heretic-battles-straw-man/

That time, I was defending transmission against a local energy advocate.