09 Nov 2011
A Power Company President Ties His Future to Green Energy
David Crane, the CEO of one of the nation’s largest electric companies, has become a leading proponent of renewable energy. In an interview with Yale Environment 360, he explains how, in the face of government paralysis, the private sector can help lead the shift away from fossil fuels.
David Crane, president and CEO of NRG Energy
, is not your typical power company executive, as becomes clear when he calls climate change a “slow-moving catastrophe” and “the fundamental issue of our day.” As head of a Fortune 500 company that produces electricity for up to 20 million U.S. households, he is still neck-deep in hydrocarbons, with more than 90 percent of NRG’s electricity production coming from natural gas, coal, and oil. But the future, vows Crane, will look radically different.
In an interview with Yale Environment 360
senior editor Fen Montaigne, Crane said he believes the U.S. electricity-generating market is on the verge of a profound transformation, not unlike the era two decades ago when the antiquated world of land-line telephones and “Ma Bell” companies was about to give way to cell phones and mobile communications. The electricity future, says Crane, will be transformed by the widespread adoption of three innovations: solar panels on residential and commercial roofs, electric cars in garages, and truly “smart meters” that will seamlessly transfer power to and from homes, electric vehicles, and the grid.
His long-term goal? To see the U.S. transportation sector kick the habit of imported oil and run on electricity generated primarily from renewable sources, especially solar power. Lamenting the political gridlock in Washington, Crane said, “We’re really putting our hopes in the free market system and the American consumer embracing technological innovation.” Yale Environment 360:
What’s your assessment of the energy politics in the U.S. now and what does it mean for a power generator like yourself, who is interested in moving the country in the direction of renewables? David Crane:
In the last four to five years, energy and the environment have become completely politicized along the same red/blue lines that divide every other major issue in Washington. I think that is extremely unfortunate because if you look at the history of energy and environmental policy — well, the last big energy bill, which was passed in 2005, was passed with bipartisan support. The Clean Air Act of 1990 was signed by George [H.W.] Bush. So the fall into partisanship is definitely a step backwards.
There was a fair degree of optimism on what I think is the fundamental issue of our day — climate change. That optimism peaked when President Obama was elected in 2008. Throughout that campaign he listed climate change as one of his three highest priorities. I would say that effort was entirely unsuccessful. Now we have shifted to a situation where the best you can hope from the government is to do no harm. And maybe help along the edges of facilitating things by eliminating red tape. So we’re really putting our hopes in the free market system and the American consumer embracing technological innovation, which will have the impact of promoting sustainability. e360:
What can you do as a major power generator to nudge the country toward a renewable energy future? Crane:
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. You can buy an
By far the biggest opportunity for those of us on the electricity side is transportation energy.”
electric car. You can put solar panels on your roof. You have choices now.
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. e360:
Can you explain why a power generator who is making nice profits producing power from coal and natural gas would want to begin pushing his company in the direction of renewables? Crane:
It’s about energy market share. Historically, when the country and the world were growing, the energy industry was always in a struggle to provide enough energy in various forms for people to use it. It’s almost unheard of for an energy company to truly market its energy, because it didn’t need to. But the global recession of 2008, combined with some technological innovation that was playing off the high energy prices of the years before the global recession, have come together at the same time. So we now have these vast energy resources available to us, like natural gas as a result of hydraulic fracturing, and the demand [in the U.S.] for energy products is less. So various forms of energy have to compete with each other.
And by far the biggest opportunity for those of us on the electricity side is transportation energy, because the U.S. spends a lot more on moving cars on American roads than lighting houses.
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
You put an electric car in your garage and you really have a mini power plant.”
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. e360:
Tell me about your discussions with the New York Giants [football team] and the potential for these stadium parking lots and other similar large-scale parking lots in terms of putting up solar panels. Crane:
The one that we’ve actually done is the Washington Redskins. The Giants one is still under discussion. We want to make Americans aware that they have these choices. So we were looking for highly visible, respected parts of the community where we could put these solar panels. We are reluctant to see solar panels consume a lot of arable land. So when you’re looking here in the more space-constrained northeast of the United States, two things really jump out; very large parking lots and warehouse rooftops. Some of the largest parking lots on the east coast are around football stadiums. So we worked with the Redskins and we put on these solar pavilions in one parking lot at their stadium, just one of maybe 10 or 12 parking lots. We covered something like 800 parking spaces, and we’re are going to make enough power, 2 megawatts, to basically provide all of the electricity needs of the stadium on non-game days.
NRG’s solar system outside FedExField in Washington, D.C. can meet 20 percent of the stadium’s power needs.
Your question points to what’s probably going to be the biggest issue in our space over the next 10 to 20 years. And that is the issue of what’s known as net metering. So for people who put in solar panels that generate more than they’re using at any given time, what happens to the excess power? I mean clearly it gets fed into the grid, but what price do you get? Net metering means you’re pushing power back into the grid rather than taking it out. But there are all sorts of complicated pricing questions because what’s being sold back into the grid should be sold really at a premium to the average 24-hour price, because almost without question the solar power that’s going back into the grid is being produced during the peak hours of the day. But each state has different rules on net metering and you will see a lot more distributed solar if the net metering in a particular state is fair or generous to solar power. But that will not normally be in the incumbent utility’s interest because mainly what a utility wants to do is keep its rates to its consumers down and get these electrons onto its grid at a very cheap price. e360:
Can you explain your three-pronged approach to transforming the country’s electricity system. Crane:
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. But someone has to tell it what’s going on with the grid at that point. And that’s what the smart meter does.
Right now around the country people are trying to introduce smart meters as just another information device. In our view, no one wants to pay for another information device, particularly when the information being given is about something that people don’t care about, which is their electricity use. So smart meters will only be accepted by the American
Smart meters will only be accepted by the American public when they do something of value.”
public when they do something of value. And the first thing that they’ll do of value is they will sense when it’s expensive to run electricity and they’ll turn appliances off around the house. But the next thing they’ll do, which is the most valuable thing that will actually put dollars in your pocketbook, is that when the smart meter recognizes that the wholesale system is getting tight and there is good pricing, it will actually sell into the grid from the car battery. Or if power from the grid is getting really expensive, the smart meter might just turn the house off from the grid and then run the key appliances in the house off the electric car in the garage.
Then you have the solar panels on the roof. If you tie in a rooftop solar panel with a smart meter, then it’s exactly analogous to the electric car battery. The smart meter could turn off the house from the grid at 3 in the afternoon and rely exclusively on the power that’s coming from the solar panels on the roof, saving the customer a lot of money on their bill from the grid. And if the person puts a big solar panel on their roof, they could sell power from that. e360:
Given the current cost of solar, how do middle-class families afford solar panels on their roofs? Crane:
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. e360:
If it doesn’t reduce their electric bill, why would they want to have leased solar panels on their roofs? Crane:
Four reasons. Number one, I think people like us will try to offer you a discount. Reason number two, if you put solar on your roof you’re deflecting the sun from beating down and that will put less strain on your
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.”
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.
And the fourth and last point is because it’s the right thing to do environmentally. I think it’s quite a persuasive set of arguments. e360:
Do you really think that within a couple of decades that this kind of trilogy will be highly visible in neighborhoods throughout the U.S.? Crane:
I absolutely believe it. 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. e360:
You’re less bullish on wind power. Why is it that you have found wind to be a less promising alternative than solar? Crane:
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.
So all those reasons lead us to offshore wind. The only type of wind that we really think has a shot at getting to the load centers is offshore wind. Having said that, in part because the price of solar panels has dropped like a stone, we think that it’s very challenging to get offshore wind done in the United States.
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To an average American who hears about Solyndra and thinks the solar business is in the tank, how do you explain that dichotomy of what you see as the promise of solar and yet this news about how solar manufacturing in the U.S. is doing so poorly? Crane:
I would say look back at the early history of the high tech-industry. Companies and chip makers failed all the time. The manufacturing business in any new area is a brutally Darwinistic place. One thing Solyndra was impacted by is that the cost of their product dropped like a stone, which is our basic point. When the Chinese government gives the Chinese manufacturers basically free money, and then says dominate the world’s solar modular manufacturing business, it’s going to be tough for manufacturers in other countries to compete with that. So what’s bad for Solyndra is good for the American consumer.
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