The head of one of America’s biggest Utility companies has forecast that it will soon be cheaper to harvest energy from your roof rather than from the grid.
David Crane, the CEO of NRG Energy, is not your typical power company executive, as becomes clear from his interview with a Yale University student magazine, e360.
NRG is a Fortune 500 company producing electricity for up to 20 million U.S. households. Crane is still neck-deep in hydrocarbons, with more than 90 percent of NRG’s electricity production coming from natural gas, coal, and oil. Crane believes the electricity market is about to be transformed by the widespread adoption of solar panels on residential and commercial roofs, and electric cars in garages,
Crane told e360: “I think the most important thing is to make the American public aware that now they have energy choices in a way that they never really did. You don’t just have to settle for using electricity in your house that is supplied by coal-fired power plants on the grid. And you don’t just have to put oil that comes from the Middle East in your gas tank. By far the biggest opportunity for those of us on the electricity side is transportation energy.
I mean the people who were opposed to climate change legislation used one of two tactics. They either said, “Well, we don’t believe it’s happening.” Which, of course, is just a bald-faced lie. Or the second part of the one/two punch is, “We can’t afford to do anything about it because a synonym for the word “green” is “expensive.” But looking forward, electric vehicles will be far cheaper to operate than internal combustion engine vehicles. And solar panels on the roof will provide power more cheaply than taking power from the grid.
The electricity side of the energy sector is 50 percent coal and 20 percent natural gas and 20 percent nuclear. The transportation side is almost all oil. And it doesn’t matter whether you’re on the left or the right of the political spectrum, no American wants to keep importing 3 million barrels of oil a day from the Middle East. So there’s huge public policy benefit to shifting the transportation sector to something other than oil.
e360: Could you talk about NRG’s move into utility-scale solar, and also your vision long-term of large-scale solar, versus distributed [smaller-scale] solar power?
Crane:So far most of our business has been utility-scale solar — gigantic plants in the desert. The biggest solar [project] we have is 295 megawatts. That’s something like 6 million solar panels. Those projects are really dependent on two things, because they cost over a billion dollars: the Department of Energy (DOE) Loan Guarantee Program and California’s 33 percent Renewable Portfolio Standard, and the fact that the two largest California utilities have been willing to sign long-term agreements in order to meet their requirements [to obtain 33 percent of their electricity from renewables by 2020] under the Renewable Portfolio Standards. We have over 800 megawatts of projects out there, which is a huge number for solar. But our view is that because the DOE Loan Guarantee Program is going away and the California utilities are coming close to putting themselves in a position to satisfy the requirement, there will be fewer of those projects in the future.
We expect to continue to pursue that business and to do well, but that’s not going to be the explosive-growth part of the industry. The explosive-growth part will be between distributed solar power, which is like 1 to 10 megawatt size, and then residential, which is measured in kilowatts. We have so many parking lots and warehouse rooftops and residential locations where people want to reduce their monthly electric bills and that is just an enormous area of growth.
Democratization of customer choice in our sector begins with two things. One is the electric car and the other is the solar panel on the roof. I think it actually starts with the electric car. You put the electric car in your garage and you really have a mini power plant because these batteries that drive electric cars are quite substantial pieces of equipment. The average car in the United States is sitting still about 22 hours a day. Those are hours where the car can either be accepting power from the grid or selling power through the grid in a phenomenon we refer to as V2G, vehicle-to-grid. That leads to the third leg of the trilogy, which is the smart meter, because between a smart meter in your house, combined with time and use pricing, you essentially want that electric car to be charging between midnight and four in the morning. And you want to have it available to basically drain itself a little between 2 and 6 o’clock in the afternoon.
This is something that most people don’t like to really talk about. But it’s just a fact of life that when you start talking about electric vehicles and solar on your roof, you’re talking about something that’s going to penetrate into the population top-down through the socio-economic strata. That’s just a fact of life. We’re very bullish on the electric car, but we don’t expect for another 20 years that a person who can only afford to have one car will have an electric car. But in America there are 60 million families that own more than one car, and that’s a big market. Ultimately, the answer to your question is this: If you assume that the average solar installation on the roof of a house is going to cost somewhere between $20,000 and $50,000, we think about one percent of the population is willing to write that check. So what the industry is already fast creating is lease arrangements, and power purchase arrangements if you’re a small business. Basically, a lease arrangement where someone like us actually owns the solar on your roof, and all the customer sees is an electric bill that’s no bigger than the electric bill they were seeing before.
I think people like us will try to offer you a discount.Also, if you put solar on your roof you’re deflecting the sun from beating down and that will put less strain on your air conditioning system. Number three, most people who understand energy realize that right now is a very good time to lock in your price of energy for as long as you can. The average age of a power plant in the United States is 40 years old. When American utilities start replacing the current generation of power plants, everyone’s bill is going to go up. The lease arrangements we’re talking about are fixed-price arrangements for 20 years. We will give you price stability for a long time — no inflation.
We believe that in the next 3 to 5 years you’ll be able to get power cheaper from the roof of your house than from the grid. Solar is going to go from this thing that right now is like .1 percent of the market to 20 to 30 percent of the overall electricity mix. That’s huge.
If you go back about four years to where the price of solar modulars were, the prices have been cut in half in the last four years. I predict that the price of solar modules will be cut in half again in the next two years. And the basic reason is that solar technology is a nanotechnology. And most forms of power generation that we deal with are based on thermal energy or, in the case of windmills, kinetic energy. With those things, in order to reduce your unit cost you just have to keep making things bigger. And so our problem with the wind industry is in order to get the per-kilowatt cost down, they have created these engineering marvels, these monstrously large wind turbines.
But to place them in a crowded country you have to put them farther and farther away from where people live. Right now, most of the action in the wind industry in the United States is in Minnesota, Iowa, and the Dakotas and they don’t use a lot of power out there. And we fundamentally don’t believe that people are going to support building a whole big network of high voltage transmission lines.
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