ENERGY Flashcards
Term
Definition
Energy Services
Services in which energy is required to provide even the most basic resources such as food, water, air, or energy itself. Energy is used in every aspect of our economy, society, and prospects for the future, and so understanding the role of energy requires understanding how it links to all of these aspects of the world around us.
Distribution
A complete calculus of the benefits, costs, risks, allocations within a population. Distribution gives us information to help us better determine prospects for our future relationship to welfare and energy would be required in order to understand the welfare impacts of our energy choices. Welfare refers to prosperity and living standards as measured by notion of “utility”.
Energy Intensity (E/GDP)
Energy (E) per unit of GDP. The relationship of how much output can be created with each unit of that energy. Energy Intensity has fallen over the years because we are getting more energy efficient.
Energy Consumption
the amount of physical units of energy used (usually measured in volumes)
Energy Productivity (GDP/E)
The concept of Energy Intensity is closely related to Energy Productivity (GDP/E), which is simply its inverse. It reframes GDP as a function of energy, and it is often used as a measure of comparative productivity across countries.
Systems Thinking
Energy is best understood as a set of interconnected systems, which are collectively referred to as the Energy System. Collectively, the object of analysis becomes these system elements and within them are many parts, sub-systems, and interactions. Such Systems Thinking is a distinct from the traditional marginal analysis that populates much of economics and social sciences.
System Dynamics
An examination of the systems and all its integral parts. It gives us information for how the system behaves and responds to stimuli, etc.
System Structure
the system can be viewed as a collection of components at any given moment in time. These components have natural groupings and relationships and can provide a geographic “map” of the system structure
Transformations
Once the system structure is established, it is useful to understand the transformations within that structure as time passes or elements change. The strength of these relationships and the direction in which they flow can explain dynamic behaviors. Systems are best understood not in how they are, but in how they change.
Non-linearities
Sometimes, dramatic change can occur but only after a while and in a non-linear way. Systems often exhibit the behavior of maintaining themselves until certain thresholds are reached and then system dynamics can radically alter the behavior to a very different mode. Observing and predicting these non-linearities reveals much about the system itself.
Root Cause
When trying to explain the reason that certain observations occur, there are many levels on which that explanation can proceed. Sometimes there is an immediate reason, but that reason is usually motivated by other, deeper relationships in a system. An apt analogy is evaluating the symptoms versus the disease, and uncovering the underlying “root cause” of the observed phenomenon can be enabled using system dynamics.
Supply Chain
This represents all of the energy in the human-industrial system – from total energy inputs to final energy consumption and energy services (outputs) –and is the basis of the energy system analysis. It also includes the physical delivery system (“Infrastructure”) to move and transform the energy from its origin to its final disposition.
Circular vs. Directional Systems
Circular systems, as the macro-economy is often modeled, has many interrelated elements that can exhibit a balance and feedback keeping the various elements in check. It is often difficult to discern the beginning and the end of a circular system process, just like the old chicken and egg problem. In contrast, directional systems tend to have a distinct beginning in a distinct end, usually with very distinct and different inputs and outputs. They start with some inputs and go through a series of transformations resulting in outputs, but the outputs don’t stay in the system or recycle in any significant way.
Innovation
Within the system (Supply, Efficiency (Demand), Cost, or Benefit) there are many incentives and opportunities to try to procure more energy inputs and use them more efficiently to create outputs. Constraints compel people to invention and creativity in trying to create additional advantage for themselves in the form of reduced costs or increase profits.
Depletion
We tend to procure the cheapest and easiest resources first, leaving the more expensive ones for later. Competitors are constantly trying to take away market share, which keeps prices in check. This notion of Depletion (of resources or capacity or value) is a very normal economic behavior whereby we minimize costs first, but that uses up a scarce opportunity that may not necessarily be replaced or renewed.
Sustainability
depletion is making things more difficult and threatening a collapse of wealth and welfare if we damage or exhaust our resource base before we can innovate to another path. The very notion of Sustainability tries to reconcile these issues.
Present Value vs. Future Value
The easiest way to conceptualize the impact of growth rates is to understand how the value of anything today (Present Value) increases by a certain periodic rate (denoted here as compound interest, or i) over a number of periods (time, or t), to determine its value at the end of those periods (Future Value).
Energy
the “living force,” or the internal motion that appears to animate things; the ability to do work; whether kinetic or potential, there is an amount of energy available in the system that can perform the work when properly directed. This is the same energy that is neither created nor destroyed once it is in the system. It is a total volume (or stock) of energy available to do work.
Primary Energy
energy sources available in nature, including Biomass (potential, chemical) - used by animals and humans for food or fuel, Fossil Fuels (potential, chemical) - includes coal, oil, natural gas; a special form of ancient biomass that has been transformed by heat and pressure underground; considered non-renewable due to the vast geoligic timescale over which they are formed, Nuclear (potential, nuclear) - resident in all atoms but difficult to liberate, Hydropower (kinetic, motion), Tidal (Kinetic, motion) - the gravitational pull on oceans creates tidal fluctuations that can be harnessed, Wind (kinetic, motio) - air flow that can be harnessed through mechanical devices, Geothermal (kinetic, thermal) - heat of the earth that can be harnessed passively and actively, Solar (kinetic, electromagnetic) - used in both thermal and electricity generation, Animal (kinetic, motion) - human or non-human; harnessed as kinetic energy. When used as food, they represent potential energy.
Secondary Energy Carriers
energy that is used but not available in primary form in the environement, includes electricity, refined fuels, hydrogen, and other synthetic fuels. Also known as “energy carriers”
Primary Energy Production
Aggregates the primary energy produced by all suppliers; World energy production over the past two centuries shows that aggregate energy use is growing dramatically but has become more diversified across various primary energy sources over time.
Scenario
a term different from forecast, which establisheds a relationship suggesting if the input variables are true, then the output parameters should be what the model suggests
Power
the rate at which energy is physically transformed; power is denominated as an instantaneous rate of transformation of energy
What are the four dimensions of transformation?
- What - changing what form the energy is in
- Where - moving energy from where it is to where people may find it more useful
- When - providing energy when needed and storing it when not
- How Certain - how sure an energy source will be available when desired
First Law of Thermodynamics
suggests that all of the energy that enters a closed system must remain in that system as energy, heat, or work produced.
Second Law of Thermodynamics
explains entropy; suggests that in most of the transformations of one type of energy to another, the heat byproduct is lost, or rendered useless.
Total Final Consumption
The total amount of energy available for consumption net of losses
Final Energy Service
examples: toasted toast, chilled beer, spinning shafts
Resources
all of the energy “out there” in nature, no matter where it is and of what type, is considered our collective energy ________.
Reserve
resources that can be harnessed with existing technology and profitability
6 Types of Captial Inputs in the Overall System
- Physical Capital – engineering and logistics – includes infrastructure and other hard assets that are necessary for procurement, transformation, or disposition of energy as it moves through the supply chain
- Financial Capital – finance and investment – in the form of ownership (equity) and borrowings (debt)
- Intellectual Capital –science and technology – knowledge and technology
- Political Capital – political science, law, and policy – having rules in place to permit or encourage certain transformation, as well as the ability to protect those authorities from interference by others
- Human Capital – labor markets
- Natural Capital – environmental science and natural resources – resources necessary for the complete functions of the energy system (water, land, raw materials)
Intellectual Capital
science and technology – knowledge and technology
physical capital
engineering and logistics – includes infrastructure and other hard assets that are necessary for procurement, transformation, or disposition of energy as it moves through the supply chain
political capital
political science, law, and policy – having rules in place to permit or encourage certain transformation, as well as the ability to protect those authorities from interference by others
natural capital
environmental science and natural resources – resources necessary for the complete functions of the energy system (water, land, raw materials)
The Energy System
All available resource and reserves given the availability of capital and the ongoing potential environmental and economic sinks; starts with resources -> primary energy supply -> intermediate energy supply + losses -> intermediate energy supply + more losses -> total final consumption + even more losses
includes capital and emissions/externalities; the height of the system is bounded by the maximum of the primary energy that enters the system
BE ABLE TO DRAW THIS MAP
stocks
the foundation of any system, you can see, feel, count, or measure at any given time
Flows
stocks change over time through the actions of these
Feedback
the communication mechanism between stocks and flows taking in data about the state of the system and communicating those to other elements of the systems, causing them to react by either maintaining or adjusting their behavior
Feeback loops
the complete cycle of these feedbacks, stocks, and flows that continually update each other. These represent equilibrium or forward moving loops that send information back through the system. o Sustaining Loops o Goal-seeking Loops (thermostat) o Runaway Loops – avalanche o Reinforcing Loops
Stabilizing Loop or Goal-Seeking Loop
One of the two main types of feedback loops observed in systems; exhibits properties of stability or equilibrium where if the system detects stocks are too low or too high, the system increases flow or decreases flow, causing the stocks to rise or lower
Runaway Loops or Reinforcing Loops
One of the two main types of feedback loops observed in systems; cause a system that is out of balance to go further in that direction (ex: avalanche)
Non-linearities
changes in behavior that take a system off its current path (when observing the system in whole)
Dose-response Curve
represents how a cause and effect react to each other
o The systems thinking approach is to ask what kind of change will cause the system at equilibrium to drive to a different equilibrium?
System Purpose
the system’s outcome; Systems are not designed, they emerge from a set of stocks, opportunities to transform those stocks, and behavioral elements that determine how the stocks and flows will change based on the conditions present in the system.
Fungibility
to be fungible, two things must share identical characteristics of what they are, where they are available, when they are available, and the certainty of each of those other characteristics
Benchmark Prices
to ease transactions in formal markets, these are established which always have rules about precisely what, when, where, and how certain the transaction
example: WHAT (nat gas) WHERE (Henry Hub, LA) WHEN (spot price) HOW CERTAIN (firm delivery)
Spot Price
price right now
Costs
all the expenses that a producer has to pay to deliver their good or service end of market; In terms of supply chain dynamic, raw materials incur costs throughout the transformation and processes that they undertake through the supply chain. These costs accrued are delivered to the customer during final consumption
Value
determined by the consumer; consumers are always trying to maximize their bang for their buck
Auctions
the rules by which trade or exchange happens within a market
Clearing Price
In an English Auction, bidders continue to bid until they are no longer willing to go any higher. The winning bid becomes this
What are the main takeaways from Ch2 ?
Energy that enters the system does so as a primary energy source; Energy transforms throughout the supply chain and these transformation determine fungibility; There are several forms of capital inputs that vital for supply chain transformation, and throughout the supply chain energy is lost and creates externalities such as emissions; Stocks and flow exist to either balance the system or transform it into another equilibrium; Economics dominates the system, which is the interactions between buyers and sellers, who exchange via a market
Market Failure
Market failures can present: Problems of internal market structure Problems of external Market Scop Problems of information Problesm of market design introduced government policy and regulation
Perfect Market Behavioral Observations
Price taking: Lots of buyers, people can’t influence price due to lack of market power
Product Homogeneity- Fungibility. Products that share fungibility are perfect subsitutes
Free Entry and Exit- Lack of Market barriers
Natural Monopoly
Industry of service for which it is only economically efficient to have a single provider. The single provide continue to achive improvements through scale, which results in a falling average cost.
Decreasing Cost Industry.
Many energy structures including electricity grid distribution exhibit these characteristics
May have Incentive problem: 1) underserve ;2 ) over charge the market
Needs appropriate regulatory structure
Cartel
Representative of Intentional anticompetitive collusion
ex: OPEC
Monopsony & Olygopsony
Small number of buyers as opposed to sellers
o Utilities may be the only buyer of whole sale generation, and may operate as a monopsony
Monopolistic competition
is a type of imperfect competitionsuch that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes.
Externalities:
Effects are felt outside transaction. Costs or benefits are not internalized into the transaction
(ex: pollution caused by creating a good or service)
Negative or Positive (transfer of knowledge)
Unintended consequences
Unexpected effects on market behavior that result from a law or regulation that is proposed. These are often deleterious, and may give rise to the need for counterbalancing legislation to correct these policy distorions
Public Good:
items that can be produced relatively cheaply, or already exist, but are very difficult
to prevent users from enjoying or participating in, technically referred to an economics as the inability to exclude.
Market Distortive
An economic scenario that occurs when there is an intervention in a given market by a
governing body. The intervention may take the form of price ceilings, price floors or tax subsidies. Market distortions create market failures, which is not an economically ideal situation. (from investopedia)
Uncertainty
Governments can affect uncertainty, which feed back in the costs of capital and expectations, and it is often done in the positive direction ( reducing uncertainty) by the provision of insurance, guaratnees or fixed payment obligations by the government to some stakeholders or market participants
Negative Externalities
Pollution caused in the process of creating a good or service, but for which htat environmental damage is not fully compensated for in the costs that the producer has to bear. Over-absoprtion of resources, pushing off costs to the future, or misallocation of risk to secondary or tertiary parties to a transaction.
Positive Externalities:
Result from activities, including knowledge and invention that is paid for by one person and is freely transferred to others for their benefit. Investmetns that reduce risk for a single participant in a system often create additional risk mitigation benefits elsewhere in the system for which they are not compensated
Informational Assymetries
A situation in which one party in a transaction has more or superior information compared to another.
This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well.
Lack of transparency or cost to obtain necessary info can affect market function
Principal-agents Problems
people who are making decisions are not the ones who will pay the consequences.
The agent has different set of information and many options which to chose, and the principal has difficulty controlling or even monitoring all of the choices made by the agent on their behalf.
Ex: Building contractors, and owners of property/ disassociation between owners of companies (principals) and their managers (agents)
Democracy: elected official (agent), and the people he governs on behalf (principals)
Adverse Selection:
there is a difference of information between buyers and sellers. (“What” of fungibility of a good
being transacted). Seller has more info of the good than the buyer. This makes entering into transactions much more difficult, as both parties expect to be in a disadvantage.
To overcome this problem:
Signaling: sellers make a kind of commitment that binds the sellers or convince buyers that the info is credible
Screening: method to elicit information that reveals the sellers info more credibly.
Moral Hazard:
a party changes behavior after the relationship is established
ex: Building owner who pays energy bill, tenant who uses a lot of energy with no lack incentive to do otherwise.
Method to solve information asymmetries:
contracting, performance monitoring, and alignment of incentives.
The problem is the Agency Costs (the costs of addressing the information gaps)
Non Market Failures (Government) Failures
All the ways that government intervention can diminish the efficiency of the delivery of
goods and services from some otherwise ideal outcome.
Behavioral Economics
study the effects of psychological, social, cognitive, and emotional factors on theeconomic
decisions of individuals and institutions and the consequences for market prices, returns, and the resource allocation.
Temporal Myopia
A form of nearsightedness where things that are up close much clear than things that are far away.
People have high discount rates.
Imputed discount rates
the rate people are implicitly willing to pay by looking at choices that they will make presented in the present and in the future
Market Interventions
business transactions, investments, or other more coordinated attempts by the market to improve its own function.
A form of market intervention is the investment of capital in some part of the supply chain that can facilitate future market transactions. Investments in capacity changes the funciton of the overall energy system by making future energy flows easier and cheaper, while simultaneously signaling to (and modifying the behavior of) other competitive producers.
Policy Interventions
regulation, governments, and establishment of open and fair markets, but can also be direct intervention such
as investment, subsidy, or risk mitigation of various desired outcomes.
tax authority
solves the free-rider problem in public goods, where some people would not choose otherwise to make the
necessary payments to achieve efficient outcomes.
Arguments for government intervention
Governments can force people into risk sharing pools. They are also good at providing information that is uesful in improving market function. They can provide product certification, safety standards, building codes, or licensing regimes that certify that the goods or services being sold meet certain minimum quality standards.
evolutionary dependence
a type of path-dependence where the benefits that someone recieves initially may be thought of as incentives but may evolve into expectations, rights, or endownments that are difficult or costly to remove. Fossil fuel subsidies, farm subsidies, and trade protections are potential examples of this
Cost of Capital
a special form of economic mechanism of system intervention, particularly in the capital intensive energy industry, includes changing the cost of financial capital for market participants
Policy Risk
policies that are subject to change frequently, short-term or anemic interventions, transfers of power, or alterations, nearly always introduce uncertainty in the market and recues the market participants willingness to invest capital until clarity is achieved.
Transmission
Movement of energy to its end use through available wires. The carry high voltage electricity because losses are a function of the current (which is lower at high voltages)
Device
Convertor of energy into energy service
Busbar
The point that a generator connects to the grid (typically at an electric substation) and functions as a conductor of the electricity generated into the grid.
Because of the nature of that transformation, it is a good place to measure the quantity of energy as well as the cost or price – the place where all of the cost of generation are accounted for.
Distribution
After a step dow transformer transforms electricity into lower voltages to be delivered to mid-size customers or transformed to further lower voltages (120V in the US) to commercial and residential facilities
Frequency
Frequency of the oscillations of alternating current (AC) in an electric power grid transmitted from a power plant to the end-user.
Set at the generator
Electricity
Kinetic energy, energy in motion. It must be used while available or stored for later use. If it is not, it will likely not be retrievable afterwards in a useful form for the system. Currently, electricity is very hard, if not impossible, to store
Best cost-efficient method to convert primary energy in a higher value state
Load
Demand side of electricity, final user
Dispatch
Combination of all of the different technologies used to generate electricity to meet that Load.
Types of load
- Base load
- Intermediate load
- Peak load
Base load
Portion of the load that is always demanded
Intermediate load
Portion of the load that predictably rises from the low point (middle of the night in these locations and seasons) to the high point on a daily basis.
Peak load
Load that occurs when the system is operating near its maximum. It is a load that is requiring the delivery electricity near maximum amount for any time during the year.
Capacity factor
It is the ratio of the actual output of a power plant over a period of time to its potential output if it were possible for it to operate at full nameplate capacity indefinitely
Frequency regulation
Maintaining frequency is vital and have to be kept within very tight tolerance. It requires the use of equipment to both add and reduce the frequency very quickly (sometimes in less than a second).
Spinning reserves
A part of the operating reserves. It corresponds to the generation assets that are required to be available and operating in synchronization to provide very rapid replacement of any unexpectedly lost generation.
Operating reserves
Generating capacity available to the system operator within a short interval of time to meet demand in case a generator goes down or there is another disruption to the supply.
Most power systems are designed so that, under normal conditions, the operating reserve is always at least the capacity of the largest generator plus a fraction of the peak load.
Ancillary services
Short- and long-term planning and systemic reliability services that provides a utility to maintain grid operation
How certain in electricity
Ensure:
- Economic dispatch and market governance
- Planning and regulatory approvals
- Billing and support services
- Obtaining investments and working capital
- Risk management and forward markets
Rate base
Or value of the capital. It represents the aggregate investment made by utilities less any accumulated depreciation previously expensed against those assets
Stranded cost
Cost of investing in certain assets that are no longer in use, but they were deemed necessary given the market conditions at the time the investment was decided. The regulator must compensate the utility for these investments
Volumetric charge
It is the portion of the bill that rises with the amount of energy customer uses, and generally is tied to the costs are utility have to incur to provide that energy. There are three types of volumetric charge:
* Bulk pricing: it starts off high and decline with scale
* Tiered rate structure: it starts off low and rise in order to deter higher usage
* Time of use pricing: it rises and falls depending on the hour of the day in order to more closely track
the costs of provision that utility my spare
Utility inefficiency
Is caused by:
- Overcharging of costs
- Incorrect depreciation allowance
- Monopolistic tendencies of under-delivery that increase costs to consumers
- Cross subsidization between regulated and competitive operations
- Lack of cost discipline due to cost recovery
How a utility makes money
Through:
- Increase the amount of assets in the rate base
- Increase the allowed rate of return
- Increase the allowed rate of return
- Hold expenses below certain levels
- Increase revenues beyond the forecasted amount
Goals of grid regulation
The goal is to ensure that:
- Minimizing the system costs passed on to the customer, while providing a fair return for the utility (Cost Minimization)
- Ensuring the highest reasonable degree of service availability for all customers. It includes: i) definition of consumers; ii) rate design; iii) level of service reliability
Vertically integrated utility
All aspects of electricity generation and delivery within a local territory are handled by a single entity or group of integrated entities
Deregulation
It is the process to change the structures regulated utilities. It means to move away from the regulated utility model and to allow for the market-setting of some components of rates in electricity bills, rather than through a regulatory process.
Unbundling
The separation of Distribution functions of utilities from those of Transmission and Generation
Benefits of vertical integration
- Reduced operational and price risk
- Reduced transaction and information costs
- Long-lived, transaction specific assets
Main constraints of the grid
- Physical failure: inability of the grid to deliver energy
* Financial failure
Energy supply risks or constraints
- Resource availability: risk of losing access to primary energy resources at a given time
- Intermittency: A source of energy that is not continuously available due to some factor outside direct control (mainly solar, wind and wave resources)
- Resource predictability: risks that the resources will be consistently available in the future
- Water requirements: some thermal plants require water to operate
Demand side risks
- Load uncertainty
* Changing demand patterns: change in demographics, usage of energy efficient devices, change in economic activitiy
Load
stock; volume of electricity being demanded by the aggregation of all end-consumers; sets a fixed and inelastic demand for this volume of electricity at any given moment
rate-payer
customer
levelized-cost
sums on a consistent basis all the cost elements involved in the creation, operation, and fueling of an asset and divides that total cost evenly over the output of that asset
levelized costing of electricity (LCOE)
amortizes cost of building, operating and fueling an electricity generator over the output of that generation
LCOE 4 components
overnight cost, fixed O&M cost, variable O&M cost, fuel cost
overnight cost
cost of completing the generation asset and putting it into service, as if it were to happen instantaneously or “overnight;” ($/W)
fixed O&M cost
operations and maintenance costs required to keep the asset operating at full capacity, before it is used to produce the first unit of output ($/W per year)
variable O&M cost
cost associated with wear and tear as the plant is used; determined on marginal basis, per unit of output; (c/kWh)
fuel cost
cost of input fuel used in process of creating output, or electricity; adjusted for heat rate
discount rate
interest rate used to determine the present value of future cash flows; the cost of money
Weighted Average Cost of Capital (WACC)
rate a company is expected to pay on average to all its security holders to finance its assets
discount period
period of time an asset or facility will be in operation; determined by expected operating time before decommissioning, financing life, or another probability-adjusted asset life
capacity factor
utilization rate, defined as the percentage time an asset is producing at its maximum rate
hours in a year
8760
heat rate
input needed to produce one unit of output at a power plant
busbar
substation connection devise where electricity from a generator is priced and delivered into the grid
busbar price
LCOE cost
fossil fuel generators (Var Costs)
high variable costs
renewable generators (Var Costs)
low variable costs
nominal LCOE
incorporates assumptions regarding inflation, uses nominal discount rate, denominated in current dollars
real LCOE
removes effects of inflation on O&M and fuel costs, uses real discount rate, denominated in constant dollars
market clearing price
equilibrium price where all profit opportunities from sellers and all benefit opportunities from buyers have been exhausted
dispatchable
sources of electricity that can be dispatched at the request of power grid operators; that is, generating plants that can be turned on or off, or can adjust their power output on demand
firm power
electricity available 24 hours a day, also known as security-constrained power
economic scheduling/economic dispatch
making sure lowest cost producers are first ones called on, followed by next lowest cost
merit order
prioritization of energy generators by lowest cost
forward markets
markets in which electricity supply can be procured in long-dated agreements with producers
supply stack
aggregate sum of the amount of electricity utilities are able to produce at their marginal cost
marginal bid
the last supplier with the lowest cost bid to achieve the desired cumulative volume
clearing price
determined by last supplier’s bid price; price paid to all operators in market who bid that price or less
average cost
total cost on a per unit basis
purchasing power agreement
a contract between two parties, one who generates electricity for the purpose (the seller) and one who is looking to purchase electricity (the buyer).
feed-in-tariff
a guarantee of payments to renewable energy developers for the electricity they produce. Payments can be composed of electricity alone or of electricity bundled with renewable energy certificates. These payments are generally awarded as long-term contracts set over a period of 15-20 years
as-available PPA contract structure
generator will get paid at a given rate when it delivers electricity, but incurs no penalty if it fails to deliver that power or does so at an inconvenient time
firm-delivery PPA contract structure
generator paid on basis of electricity delivered on time at agreed upon level
out-of-merit dispatch
when higher cost generators are used in place of potentially lower-cost ones
market power
ability to profitably alter prices away from competitive levels
capacity markets
where forward capacity (existing or speculative)–three or more years out–can be bought and sold
$/kW-year
measurement for capacity payments
transmission
represents bulk of transfer of power from substation to substation in electricity system; moves power from areas of high supply to areas of high demand
Load
stock; volume of electricity being demanded by the aggregation of all end-consumers; sets a fixed and inelastic demand for this volume of electricity at any given moment
rate-payer
customer
levelized-cost
sums on a consistent basis all the cost elements involved in the creation, operation, and fueling of an asset and divides that total cost evenly over the output of that asset
levelized costing of electricity (LCOE)
amortizes cost of building, operating and fueling an electricity generator over the output of that generation
LCOE 4 components
overnight cost, fixed O&M cost, variable O&M cost, fuel cost
overnight cost
cost of completing the generation asset and putting it into service, as if it were to happen instantaneously or “overnight;” ($/W)
fixed O&M cost
operations and maintenance costs required to keep the asset operating at full capacity, before it is used to produce the first unit of output ($/W per year)
variable O&M cost
cost associated with wear and tear as the plant is used; determined on marginal basis, per unit of output; (c/kWh)
fuel cost
cost of input fuel used in process of creating output, or electricity; adjusted for heat rate
discount rate
interest rate used to determine the present value of future cash flows; the cost of money
Weighted Average Cost of Capital (WACC)
rate a company is expected to pay on average to all its security holders to finance its assets
discount period
period of time an asset or facility will be in operation; determined by expected operating time before decommissioning, financing life, or another probability-adjusted asset life
capacity factor
utilization rate, defined as the percentage time an asset is producing at its maximum rate
hours in a year
8760
heat rate
input needed to produce one unit of output at a power plant
busbar
substation connection devise where electricity from a generator is priced and delivered into the grid
busbar price
LCOE cost
fossil fuel generators (Var Costs)
high variable costs
renewable generators (Var Costs)
low variable costs
nominal LCOE
incorporates assumptions regarding inflation, uses nominal discount rate, denominated in current dollars
real LCOE
removes effects of inflation on O&M and fuel costs, uses real discount rate, denominated in constant dollars
market clearing price
equilibrium price where all profit opportunities from sellers and all benefit opportunities from buyers have been exhausted
dispatchable
sources of electricity that can be dispatched at the request of power grid operators; that is, generating plants that can be turned on or off, or can adjust their power output on demand
firm power
electricity available 24 hours a day, also known as security-constrained power
economic scheduling/economic dispatch
making sure lowest cost producers are first ones called on, followed by next lowest cost
merit order
prioritization of energy generators by lowest cost
forward markets
markets in which electricity supply can be procured in long-dated agreements with producers
supply stack
aggregate sum of the amount of electricity utilities are able to produce at their marginal cost
marginal bid
the last supplier with the lowest cost bid to achieve the desired cumulative volume
clearing price
determined by last supplier’s bid price; price paid to all operators in market who bid that price or less
average cost
total cost on a per unit basis
purchasing power agreement
a contract between two parties, one who generates electricity for the purpose (the seller) and one who is looking to purchase electricity (the buyer).
electricity tariff
price of electricity
feed-in-tariff
a guarantee of payments to renewable energy developers for the electricity they produce. Payments can be composed of electricity alone or of electricity bundled with renewable energy certificates. These payments are generally awarded as long-term contracts set over a period of 15-20 years
as-available PPA contract structure
generator will get paid at a given rate when it delivers electricity, but incurs no penalty if it fails to deliver that power or does so at an inconvenient time
firm-delivery PPA contract structure
generator paid on basis of electricity delivered on time at agreed upon level
out-of-merit dispatch
when higher cost generators are used in place of potentially lower-cost ones
market power
ability to profitably alter prices away from competitive levels
capacity markets
where forward capacity (existing or speculative)–three or more years out–can be bought and sold
$/kW-year
measurement for capacity payments
transmission
represents bulk of transfer of power from substation to substation in electricity system; moves power from areas of high supply to areas of high demand
The Photo-votaic effect
when photons of light shining on certain materials eject free electrons, which can be captured as they attempt to move toward an alternate layer. This process creates an electrical current that can power electronic devices
Wave-particle duality
having the properties of both waves and particles. Photons exhibit these properties and when they are at a high enough frequency, transfer their energy to ejected electrons
PV Cells
devices that convert light into electricity.
PV modules
a package of PV cells that are strung together in order to achieve certain voltage outputs. PV modules encapsulate the components in such a way that they would be protected from water and other contaminants that would degreade module performance. Unless converted with an onboard device, electricity from PV modules are Direct Current.
Device controller
ensure that batteries are being a charged in a way that is not dentrimental to their long-term application. Also regulates the use of electricity from both the PV module and the batteries to meet the load
Off-grid systems
collection of technologies that provide electricity including solar lanterns, solar powered electric fences, marine applications, remote communications, and that require no access to grid electricity
Inverter
device that converts DC power to AC power. During the conversion (transformation), power losses occur as well as capital investment.
Hybrid PV systems
PV systems that have the ability to convert DC power to AC power. Can be supplemented with a generator to ensure power is available even when sunlight is not and when batteries are depleted. Thus, Hybrid PV systems give additional assurance of electricity under a wider range of needs and ambient conditions
Grid-connected systems
PV systems designed to accept AC power from the grid when it is available. The grid acts as an emergency backup the same way a generator is used in a PV hybrid systems. Also, grid-connected systems utilize grid connections and be configured to displace the need for (costly) on-site batteries. Grid-connected systems have become the dominant method of deploying distributed PV primarily because they reduce upfront costs/LCOE.
Solar constant
the amount of sun hitting any perpandicular surface over time is the same
Insolation
how much sun is available for capture at any point in time on the surface of the planet
Installed cost system
cost of a completed PV system .First, a large portion of the installed cost is in the cost of the modules themselves, which means that driving down those costs, or improving their efficiency will have meaningful impact on the overall economics of the system. Second,a large portion of the costs is not in the module costs, but is in the balance of systems, or BOS, costs and the soft costs.
polysilicon PV
crystalline silicon semiconductor base, it is the dominant form of technology used today to produce PV modules
PV wafers
sliced portions of polysilicon PV that are chemically treated (doped) to have specific photoelectric properties. They are used to produced PV cells
Thin-film PVs
forms of PV modules that eliminate the use of thick PV wafers which contain polysilicon. Thin-film PVs arose due to the inherent limitations of the capital-intensive process of producing polysilicon, and in response to occasional bottlenecks in the polysilicon supply-chain.
Amorphous Silicon (Thin-film)
uses silicon as a semiconductor, but applies it directly to the module construction. This technology can be cheaper, but has a lower relative operating efficiency, which creates an economic penalty for its use.
Cadium telluride (CdTe) (Thin-film)
CdTe modules dispense with the silicon altogether and instead use a combination of thin semiconductor layers of cadmium and tellurium.
Copper Indium Gallium di-Salinide (Thin-film)
the newest class of commercial PV modules. It uses a combination of materials to improve efficiency further. CIGS (and a number of related chemistries) deposition can occur directly on glass (a super-strate) or can be deposited onto a backing layer (a substrate) like stainless steel or even plastic which has the potential to further speed up manufacturing and deposition, reducing capital investment and operating costs.
III-V cells
high-performance cells which can achieve double or even triple the efficiencies of some of the standard PV modules, but many of them are incredible difficult to manufacture and do not lend themselves to mass production.
Champion cell
best PV cell created and tested at given time period for each technology
Commercial efficiencies
measured on commercial production lines and sold for use by costumers. Tend to be a fraction of a champion cell, often between 50-70% but tend to climb in tandem
Balance-of-system components
number of components necessary to configure PV modules into a working system on the customer side.
Soft costs
cost of components in the installation of PV systems
Developers (soft cost)
people who find customers and see them through the completion of a project
Customers acquisition costs (soft cost)
finding people who are both willing and qualified to install a solar system on their home or business represents a meaningful investment of time and money. Finding customers (through many different methods of outreach and advertising) and getting them to signal their initial interest is only the beginning, and many of them require an investment of time for designing and bidding the systems before they are determined to be unsuitable (or ultimately unwilling) to go forward. Customer acquisition costs, particularly for the smallest installation types, can end up being the single largest cost component after the cost of the module.
Design and approval (soft cost)
determining the site specifications and the specific components required to optimize the solar array require technical talent and time. Depending on the local zoning and building inspection requirements, getting these plans and the final installation certified for use can also be a complex undertaking.
Financing (soft costs)
the financial capital needed to purchase a PV system, whether that is the customer or some third-?party financial provider. Ensures that there are adequate financing solutions available and that the customers can take advantage of them requires time and expertise. Even when the direct cost of obtaining the financial solution is low, poor customer creditworthiness can result in the loss of the productive time spent identifying and developing their systems before the determination is made they cannot qualify for a loan to pay for it.
Monitoring and billing (soft costs)
once the system is installed, it is important to continually monitor and ensure optimal performance as well as identify any faults, failures, or hazards. Depending on the nature of the billing process, accurate tracking of the system output may also be needed to determine the amount paid by a customer each month. Regardless of the billing type, sending statements and no collections must be performed, which is often complicated at the smallest and least creditworthy part of the customer base.
Solar PPA vs. Solar Lease
PPA better for the customer. Lease is better for Finance
Grid access
set of rules that give the permission and the contractual relationship that coordinates the activities of generators with a grid’s operation.
Rate design
the allocation of the grid’s costs to the various users of its services is done through process of rate design. Rate design is predominantly driven by volumetric considerations, which allocates the costs over certain volume of energy used by the customers. However, the specific features and choices in the rate design can dramatically affect the economics of the DG intervention.
Investment tax credit (ITC)
offered by the US government (and some states), ITCs function in a similar way to rebates through the issuance of monetizeable tax credits.
Feed-in tarrifs (FITs)
an alternate economic incentive can pay for the output of the system, rather than paying for a portion of the system itself. Germany launched the first widely successful PV FIT, which provided customers a preferential payment for the kilowatt-?hours they generated with their distributed PV system and fed into the grid. Customers then purchased their electricity consumption on a gross basis just as if they had no PV
system. Once this tariff was fixed at the time of installation, it provided a very steady revenue stream which made the systems easily financeable by banks and other lending partners.
Renewable Portfolio Standards (RPSs)
require utilities in their jurisdiction to procure a certain percentage of their supply from renewable sources. The utilities will do this through a forward contract procurement process that allow generators to get paid a competitive rate based on their cost structure, and not have to compete directly with the other
generators.
Renewable Energy Certificates (RECs)
show how much energy was produced that met the renewable standard.These can sometimes be traded through formal exchanges.
Solar REC (SRECS)
SRECS are RECS that are specifically designed to meet solar carve-outs
Specific Energy
Measure of the amount of energy available over unit of weight of the fuel
Energy Density
Amount of energy available per volume of storage
Design Efficiency
All vehicles have a relatively narrow range of the relationship between fuel used and the distance covered. This measure is usually established at the time of design and engineering of the vehicle (design efficiency) and independently tested through rigorous protocols and are generally expected to be relatively similar across all vehicles of the same type and make.
Invisibility Problem
Where trying to figure out all of the precise variables and risks may not be worth fixing the inefficiencies that they create - particularly if the fuel bill is a small portion of the TCO or the other competing objectives seem important.
Lock-in Problem
Switching cost of moving to a different fueling type might require behavior or operational changes that customers are unable or unwilling to accommodate.
Fleet Economics
The cost of fueling infrastructure could be spread across different modes of transportation to bring down the upfront investment
Crude Oil
Naturally formed liquid hydrocarbon that is extracted from the earth
Associated Gas
substantial amount of methane that come out of the oil well
Benchmarks
benchmarks exist around the world in order to establish a standard price for standardized grades of fuel at the same hub locations.
Benchmark Price
each of the benchmarks can be used to establish a standardized price that allows other crudes with slightly different quality or geographic characteristics to determine a fair adjustment to the benchmark price.
Cartel
when firms collude or are forced to behave in a coordinated fashion by a government oversight body.
Seven Sisters
Exxon, Mobil, Chevron, Gulf, Texaco, Shell, BP which worked to protect their profits through market share allocation, price fixing, and other anti-cooperative behavior
Shale gas technologies
Horizontal drilling and hydraulic fracturing
Horizontal Drilling
Directional drilling can be used to reach targets that can not be drilled with a vertical well; it also creates more reservoir contact than is possible with a vertical well.
Hydraulic Fracturing
Fracking is the process of drilling down into the earth before a high-pressure water mixture is directed at the rock to release the gas inside. Water, sand and chemicals are injected into the rock at high pressure which allows the gas to flow out to the head of the well; increases well permeability, enabling the gas trapped in the rock to be produced at economic flow rates.
Unconventional Gases
Involve reservoirs where permeability is low and they include “tight” sandstones, coal beds, and shales
Proved Reserves
Proved reserves are well- defined gas volumes, known to be recoverable with a high degree of certainty.
Technically recoverable resources
Technically recoverable resources are a broader category that includes the proved reserves along with gas volumes that are not yet being exploited but which can be expected to be identified by future exploration, given currently available technology, and independent of cost considerations.
Conventional Gas
Produced from discrete, well-defined reservoirs with permeability greater than a specified lower limit
Tight Gas
While shale gas is trapped in rock, tight gas describes natural gas that is dispersed within low-porosity silt or sand areas that create a tight-fitting environment for the gas.
Wet Gas
Natural gas that contains an appreciable proportion of hydrocarbon compounds heavier than methane (e.g., ethane, propane, and butane). The mixture may be gaseous or both liquid and gaseous in the reservoir; the heavier hydrocarbons are condensable when brought to the surface and are frequently separated as natural gas liquids (NGLs).
Shale Gas
Shale gas is a description for a field in which natural gas accumulation is locked in tiny bubble-like pockets within layered sedimentary rock such as shale. Think of it as similar to the way tiny air pockets are trapped in a loaf of bread as it bakes.
Stranded Gas
Astranded gas reserveis a reserve ofnatural gaswhich has been discovered, but remains unusable due to physical oreconomicreasons. Gas found in anoil wellis generally calledassociated gasrather than stranded gas but some flared gases from oil wells are stranded gases that are unusable due to economic reasons.
CNG
Compressed natural gas; alternative to gasoline that’s made by compressing natural gas to less than 1% of its volume at standard atmospheric pressure. Consisting mostly of methane, CNG is odorless, colorless and tasteless.
LNG
Liquefied natural gas; natural gas (predominantly methane, CH4) that has been converted to liquid form for ease of storage or transport. It takes up about 1/600th the volume of natural gas in the gaseous state. It is odorless, colorless, non-toxic and non-corrosive.
Coal-to-Gas switching
Particularly occuring in the electricity sector.
Indexing
Linking gas prices to competing fuels—specifically oil products
Rig Count
A tally or count of rigs; used to analyze drilling activity
Rig Productivity
EIA analyzes drilling efficiency using the average number of wells a rig can drill over a period of time as well as a measure of how productive each new well is expected to be
Break-even-Price (BEP)
the point at which gains equal losses.
Greenhouse Gases
Greenhouse gas in the context of the Kyoto Protocol, i.e., CO2 (carbon dioxide), CH4 (methane), N2O (nitrous oxide), HFC/PFC (hydrofluoro- carbons), and SF6 (sulfur hexafluoride)
Climate Change
Refers to a change in the state of the climate that can be identified (e.g. using statistical tests) by changes in the mean and/or the variability of its properties, which persist for an extended period, typically decades or longer. This refers to any change in climate over time, whether due to natural variability or human activity
Carbon Capture & Sequestration
CCS is the processeof capturing or sequestrating waste CO2 from large emission point sources such as fossil fuel power plants, transporting compressed CO2 to a storage site, and injecting/depositing it where it will not enter the atmosphere, normally an underground geological formation
Fugitive Emissions
An intentional or unintentional release of gases from anthropogenic activities excluding the combustion of fuels
Carbon Tax
Tax-based policy specifically aimed at reducing greenhouse gas emissions (GHG) generated from burning fuels by putting a price on each tonne of GHG emitted
Cap and trade
Market-based policy tool which sets an aggressive cap, or maximum limit, on emissions, distributes authorizations to emit in the form of emissions allowances and allows for each source to design its own compliance strategy to meet the overall reduction requirement, including the sale or purchase of allowances, installation of pollution controls, and implementation of efficiency measures.
Kyoto Protocol
The Kyoto Protocol is a legally binding agreement under which industrialized countries will reduce their collective emissions of greenhouse gases by 5.2% compared to the year 1990
Emission Trading Scheme (ETS)
Works on the ‘cap and trade’ principle. A’cap’, or limit, is set on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. In some ETS’s like the EU ETS the cap is reduced over time so that total emissions fall
Clean Development Mechanism
Clean development mechanism – mechanism in the framework of the Kyoto Protocol that gives emitters of signatory states the option of investing in projects in developing countries under specified conditions and receiving CO2 certificates for this
RGGI
The Regional Greenhouse Gas Initiative (RGGI) is the first market-based regulatory program in the United States to reduce greenhouse gas emissions and is a cooperative effort among Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector
Social Cost of Carbon
Includes all costs in the abatement cost calculation i.e. investment and operating costs as well as possible cost savings generated by use of the alternative, but excludes transaction costs, communication/information costs, subsidies or explicit CO2 costs, taxes, or consequential impact on the economy
Abatement Cost
Incremental cost of a low-emisssion technology compared to a reference case, measured in currency unit per tCO2e of emissions e.g. $/tCO2e. societal cost perspective which Includes investment costs (annualized capex repayments), operating costs and possible cost savings generated by use of alternatives. Excludes transaction costs, taxes, subsidies or explicit CO2 costs
Abatement Cost Curve
Curve depicting the abatement potential (reflected by the available technical measures to abate and their relative emission volume reduction potential) and the cost of abatement, relative to a reference or business-as-usual scenario, in a specific year
Parasitic Energy Requirements
Parasitic energy requirements refer to the power used to run the emission mitigation machinery such as the regeneration of CO2 capture sorbents, compression of captured CO2 for transport and injection, the additional tower to minimize SO2 emission and the production of oxygen in oxy-fuel systems
Energy Efficiency
The intentional process by which to change the performance of devices in ENERGY terms (in contrast to influencing their POWER characteristics, which will be discussed in the Demand Response section)
Rebound Effect
A postulate that people increase their use of products and facilities as a result of this reduction in operating costs, thereby reducing the energy savings
ESCO
Energy Service Company. Typically a commercial or non-profit business providing a broad range of energy solutions including designs and implementation of energy savings projects, retrofitting, energy conservation, energy infrastructure outsourcing, power generation and energy supply, and risk management.
Premium Efficiency Investment
The portion of the cost of any device or solution is necessary just to achieve the energy efficiency improvements, off of some standard or benchmark. These Premium Efficiency Investments should be the amounts used to construct total investment amounts and any calculation of the returns achieved from adopting the energy efficiency measures.
Decoupling
Inpublic utilityregulation,decouplingrefers to separating the total revenue that can be recovered from the actual kilowatt-hours that customers use. Instead, arate of returnis aligned with meeting revenue targets, and rates are trued up or down to meet the target at the end of the adjustment period. This is primarily intended to incentivize utilities to engage in energy efficiency programs.
Demand Response
Demand response (DR) refers to deliberate load reductions during times of system need, such as periods of peak demand or high market prices. Because reduced consumption and increased generation can both restore a system’s supply and demand to equilibrium, DR can be a resource that offsets or defers the need for new generation, transmission, and/or distribution infrastructure.
Interruptible Tariff
For decades, utilities have historically offered large industrial customers the option to secure lower energy rates through “interruptible tariffs” in exchange for reducing power consumption during periods of system need. These programs are largely designed as a last-resort resource to be called upon in the case of imminent brownouts or blackouts. However, interruptible tariff
Economic DR
Price response, or economic DR programs, involve the voluntary response to price signals. In such programs, end-users reduce consumption during periods of high wholesale prices and receive the market rate for the avoided energy they provide via their demand reduction.
Direct Load Control
DLC is where, based on an agreement between the utility and the customers, the utility remotely controls the operation of certain appliances in a household in response to high demand.
Response Time
Another consideration of the various energy options is how quickly it can be called on to either accept or deliver electricity. Chemistry batteries with modern controls
Ancillary Services
Ancillary services are those functions performed by the equipment and people that generate, control, and transmit electricity in support of the basic services of generating capacity, energy supply, and power delivery. The Federal Energy Regulatory Commission (FERC) has defined such services as those “necessary to support the transmission of electric power from seller to purchaser given the obligations of control areas and transmitting utilities within those control areas to maintain reliable operations of the interconnected transmission system.” End-users that can provide near instantaneous response to dispatch signals without a significant impact on business operations are effective ancillary services resources.
Co-Generation
Cogeneration or combined heat and power (CHP) is the use of a heat engine [1] or power station to simultaneously generate electricity and useful heat.
Load leveling
If energy value drivers only occur once per day, then the ideal proposition would be to buy power at the most part of the day (often at night) and sell it back at the peak hours of the next day (i.e. in the middle of the day or late afternoon/early evening). This is termed Day-night Arbitrage. Because this process also reduces the top and fills in the bottoms of the load curve, it is sometimes referred to as Load Leveling.
Load shifting
Load-shifting allows for an energy input from a few hours before the peak to be delivered at the peak, with compensation being provided for the differential value for the electricity. This particular configuration is also very useful when generation may be closely coincident with the peak, but not exactly, such as in the case of solar generation technologies in places where there is a late afternoon or early evening load peak. Being able to move the generation a few hours later greatly improves the economics and functioning of the overall system.
Peak shaving
One common goal for electricity storage is to meet some of the same challenges that demand response targets in reducing the peak energy requirements of the grid, particularly at its most constrained times of the day or year. Very small amounts of energy shifting, or Peak Shaving, at these moments can have substantial impact on the system power requirements and overall grid stability. The value for reducing these peak power needs can be significant, since under current Dutch Auction market structures, the reduction in the wholesale power benefits all customers. Also, the grid operator would need to deploy less generation (and potentially transmission and distribution) assets to prepare for these rare but inevitable peaks. For these reasons, there is value to this peak shaving that could be potentially compensated.
Frequency regulation
Frequency regulation is the short-term management of the supply and demand balance in the grid that keeps the system operating within acceptable parameters of voltage and current and avoid tripping or curtailing assets, which could lead to cascading failures. In restructured electricity markets, these services for standby power and execution in both “up” (adding) and “down” (reducing) markets, depending on which direction the system is imbalanced. Storage solutions are particularly effective at meeting this need due to their requirement to both take in and deliver electricity in balance over a given period of time. They can participate in “up” market sometimes in “down” markets others, often in rapid succession. These are sometimes referred to as “balancing markets” in Europe.
