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A revolutionary path forward in the world’s energy transition, one that is unprecedented in the global power industry, is taking shape in the USA. In Texas, the city of Denton – with 128,000 inhabitants and an annual peak load of 350 MW – has developed a clever way to increase its reliance on renewable energy to 70% with wind power, and its utility business model is being replicated across the U.S.
De-carbonization is now causing major changes in the electricity production arena as energy producers move away from centralized power generation towards a more distributed model, transitioning from burning coal to relying more and more on wind and solar. Our world has undergone a fundamental shift since the signing of the Kyoto protocol in 1997, an international treaty which commits state parties to reduce greenhouse gas emissions. The mindsets of people have shifted to prioritize environmental concerns through purchases of low emission cars and energy efficiency solutions, as have state governments like California, which set a mandate for utilities to reach 50% renewables by 2030.
Until now, all attempts to create “zero-carbon cities” have been expensive, experimental efforts centered around one consideration: sustainability. Common challenges facing the incorporation of more renewables into the grid have included system stability concerns due to the inflexibility of the existing power systems and, depending on the relative mix of available renewables, increased generation costs. For example, in Germany, wide integration of wind and solar power have led to a doubling of consumer electricity prices since the early 2000s, as the country seeks to curb carbon emissions. In order for a low-carbon model to work, utilities must not only consider sustainability, but also reliability and affordability, and take smaller steps to move toward a zero-carbon goal. Trying to take one single quantum leap directly to the zero-carbon system is not realistic, practical, or economically viable.
In Denton, this type of optimal power solution is already underway and, once it goes live with its new systems in 2019, CO2 emissions will be reduced 78%, costs will fall 35%, and water savings will exceed 90%. These results will outperform all other existing models and set a benchmark for other cities and countries around the world.
Denton will make history and serve as a viable model for many other cities in Texas—a state that already ranks No. 1 in wind power output—and in other states located in the windy mid-section of the United States that stretches from the Gulf Coast to North Dakota. We call this region the U.S. Wind Corridor, and its powerful winds are a major natural resource, giving the country a huge advantage and business opportunity.
Due to 70% renewables, Denton’s exposure to fuel commodity price risk will be very low, and electricity price volatility risks will be mitigated through hedging with their own flexible plant. Clean, cost efficient and low-risk - no longer will renewables lead to higher costs and volatility risks. How can this be done?
It involves three key steps:
- Denton gives up its stake in a 34-year-old coal plant, and buys wind and solar with long-term power purchase agreements. Such contracts offer a price of less than $20/MWh in the wind-rich Midwest.
- Denton buys another portion of its electricity mainly from the real-time electricity market, where prices are lower on average than in ERCOT’s day-ahead market, but also more volatile.
- The third important building block of the business model is a modern, flexible gas power plant, with unlimited five-minute starts to full load. This enables Denton to hedge its real-time market purchasing costs at any 5-minute price interval.
The total package is unbeatable and unique on a global scale: 70% renewables, 35% cost savings, power generation water saving of more than 90%, very low dependency on fuel commodity prices, and a 78% reduction in carbon emissions. Utilities can now save big money while simultaneously integrating large amounts of renewables into the grid. Denton is at the forefront of innovation in the electricity universe, a prime example for many others looking to integrate renewables in a smart way.
Other companies and the wind power industry are understanding the magnitude of this opportunity. As an example, Southern Power recently penned an agreement to develop two flexible gas power plant projects, which “can be brought online and cycle up and down more quickly than can conventional plants, making this technology a near ideal match for the wind industry,” according to an article from Windpower Engineering. The age of inflexible centralized steam power plants is coming to a close. Renewables and flexible gas plants are the next major step towards the final goal of zero-carbon power systems.
For more information on the Denton case, download a free copy of author Matti Rautkivi’s book, “Goodbye to Deerland: Leading Your Utility Through the American Energy Transition,” which offers a roadmap to transform your electric utility and succeed in the fast-changing U.S. energy landscape.