Guest Post by Willis Eschenbach
The “Annual Energy Outlook” for 2011 is just out from the US Energy Information Administration. The section called “Levelized Cost of New Generation Resources” looks at what are called the “levelized” costs of electric power from a variety of sources. Their study includes “renewable” sources like solar, although I’ve never found out exactly how they plan to renew the sun once it runs out. The EIA data in Figure 1 shows why solar will not be economically viable any time soon.
Figure 1. Levelized costs of the different ways of generating power, from the EIA. Blue bars show the capital costs for the system, while red bars are fuel, operations, and maintenance costs. Estimates are for power plants which would come on line in five years. Operation costs include fuel costs as appropriate. Background: HR diagram of stars in the star cluster M55
“Levelized cost” is a way to compare different electrical generation technologies. It is calculated by converting all of the capita costs and ongoing expenses for the project into current dollars, and dividing that by the amount of energy produced over the lifetime of the plant. For the mathematically inclined there’s a discussion of the various inputs and calculations here. Levelized cost is the all-up cost per kilowatt-hour of generated power. The levelized costs in Fig. 1 include transmission costs but not the costs of backup for intermittent sources.
So why is this chart such bad news for solar electricity? It’s bad news because it shows that solar won’t become cheap enough to be competitive in the open market any time in the near future. Here’s why.
Now, please don’t get me wrong about solar. I lived off the grid for three years on a houseboat with solar power in Fiji, collecting sunshine and drinking rainwater. I am a solar enthusiast and advocate, there are lots of places where it is the best option.
But not on the grid. It’s too expensive.
Yes, it’s true that the sunshine fuel is free. And the operations and maintenance is cheap, 2 cents a kilowatt-hour. And as backers are always claiming, it’s the only technology where the capital cost is falling rather than rising, as the price of solar cells drops.
But here’s the problem. Solar cell prices have already fallen so far that only about thirty percent or so of the cost of an industrial-sized solar power plant is solar cells. The rest is inverters, and wiring, and racks to hold the cells, and the control room and controls, and power conditioners, and clearing huge areas of land, and giant circuit breakers, and roads to access the cells, and the site office, and half a cent for the transmission lines from the remote locations, and labor to transport and install and wire up and connect and test all of the above, and …
That means that out of the twenty cents of capital costs for solar, only about six cents is panel costs. Let us suppose that at some future date solar panels become, as they say, “cheap as chips”. Suppose instead of six cents per kWh of produced power, they drop all the way down to the ridiculous price of one US penny, one cent per kilowatt-hour. Very unlikely in the next few decades, but let’s take best case. That would save five cents per kWh.
The problem is that instead of 22¢ per kWh, the whole solar electric system at that point would have a levelized cost of 17¢ per kWh … and that is still two and a half times the price of the least expensive option, an advanced combination cycle gas turbine.
Finally, this doesn’t include the fact that when you add an intermittent source like solar to an electrical grid, you have to add conventional power for backup as well. This is so you will be sure to still have power during the time when the sun doesn’t shine. Even if you never use it, the backup power will increase the cost of the solar installation by at least the capital cost of the gas plant, which is about two cents per kWh. That brings the levelized cost of solar, IF panels dropped to a levelized cost of only one penny per kWh, and IF the backup generation were never used, to 19¢ per kWh … and that’s way more than anything but offshore wind and solar thermal.
However, it gets worse from there. The cost of fuel for the gas advanced cycle power plant is only about 4 cents per kWh. So even if gas prices triple (which is extremely unlikely given the advent of fracking), the gas plant cost will still only be about 14¢ per kWh, which is still well below even the most wildly optimistic solar costs.
And that means that the dream of economically powering the grid with solar in the near future is just that—an unattainable dream. The idea that we are just helping solar get on its feet is not true. The claim that in the future solar electricity will be economical without subsidies is a chimera.
w.
PS—On a totally separate issue, I suspect that the maintenance costs for wind power are underestimated in the report, that in fact they are higher than the EIA folks assume. For example, both wind and water are free, and the EIA claims that wind and hydro have the same operation and maintenance cost of about one cent per kWh.
But with hydro (or almost any other conventional technology) you only need to maintain one really big generator on the ground.
With wind, on the other hand, to get the same amount of power you need to maintain dozens and dozens of still plenty big separate generators, which are stuck way up at the top of really tall separate towers … and also have huge, hundred-foot (30 m) propeller blades whipping around in the sky. You can imagine the trek you’ll have when you forget to bring the size #2 Torx head screwdriver …
Do you really think those two systems, both feeding the same amount of power into the grid, would cost the same to maintain? Check out the windfarms and count how many of the fans are not turning at any given time …
Discover more from Watts Up With That?
Subscribe to get the latest posts sent to your email.
The latest Nuclear power stations are designed for a minimum life of 60 years and in the case of the new generation Thorium Reactors being designed in India, 100 years, what would be the levelized cost in cents of nuclear power if the length of the operating life cycle was taken into account?
Thanks for the cost comparisons, Willis, Your misgivings about the true costs of wind power are most likely justified. I can think of a few things that should be taken into account and possibly were not, Take standby power generation when the wind doesn’t blow (or blows too hard) and the wind turbines are just idling — when conventional generating capacity has to take up the slack, the cost of connecting wind turbines to the grid. Then there is the question of whether the cost estimates for wind power are based on the theoretical maximum capacity rating of the turbines or on the real generating capacity of around 22 – 24 percent of rated generating capacity.
Walter H. Schneider says:
December 3, 2011 at 1:30 am
See the underlying document, which is cited at the top. They have figured a capacity factor for wind of 34%. I think a more realistic figure is 25%, which is close to your numbers of 22-24%.
In addition, you are correct that the cost of standby generation need to be included.
If we adjust the wind figures for those, I get:
1. Adjustment for higher maintenance: + 1¢ per kWh, likely more.
2. Adjustment for backup: + 2¢ per kWh plus fuel, call it maybe 3¢ per hour.
3. Proper capacity factor. They have overestimated the capacity factor by about 50%, which will increase costs by about + 6¢.
Together these bring the cost of wind power up from 11¢ per kWh to 20¢ per kWh. I don’t see those numbers dropping a whole lot. Certain locations and installations might be lower than that, but like solar, wind electricity is a long ways from making economic sense.
w.
Never thought I would disagree with You Willis, but on this I do.
You and US Energy Information Administration compare solar cells with other large scale electricity production alternatives. But solar cell is mainly, as on Your boat, a small scale solution for electrical consumers. Solar Cells have to be seen from small scale consumer perspective not from a large scale production perspective. With solar cell on my house will I get more independent from large companies, energy taxes and grid utility companies. I love that. Then can can I show them my longest finger. That feeling is worth a lot to me.
Price for PV panels is now below USD1 per watt and falling.
That give in Sunny states a annual output of up to 2 kWh electricity. Grid inverters are now also falling in price. It is in many places now a good investment for consumers but not for producers to get solar panels.
I have been in computer business since 1982 and I see a very similar development as the PC went through. Now is large scale computing made by many small PC processors. In the very near future will many small scale PV installations in total be producing larger amount of electricity than large scale production facilities. Just because it is good investment, for consumers.
And of the joy to get independent. A small scale revolution. 😉
Walter H. is correct. Now that alternative power plants have had a few years of running some interesting performance figures have come to light. The best the UK can get is around 17% for wind turbine and have their fair share of maintainence issues, network instability etc.. Here in Australia new subsidised solar panels have been running for more than a year. A 10kW solar unit shows that it can deliver around 40kwh per day averaged over 12months.
Denmark boasts that 50% of their generation capacity comes from wind turbines, however they only manage to deliver around 15% to 20% of their capacity. A typical coal fired generator can deliver around 90% of it’s 660mW name plate rating 24/7. You will need around 300 wind turbines to match that name plate rating only, but will never deliver 24/7.
But you are using logic and facts. That’s not the way the system works. Governments do what is politically in their interest to stay in governemnt. Even in a steadfastly nuclear France, the coming government will be a Socialist/Green combo. To support the Socialist to get enough votes the Greens have demanded that nuclear will be phased out completely. The Socialists have talked that down to downsizing from 80% to 50% by 2050. Totally absurd capital destruction and will cause a tripling of current electricity costs making France even less commercially competitive (if that is even possible )
To counteract this, the current government in the hopes of being reelected has now commissioned a huge offshore windpark. Go figure, your energy is practically 100% clean but lets waste a fortune we don’t have on pointless exercise. All to get reelected. That’s how it works, not if it’s in any way reasonable…
coldlynx says:
December 3, 2011 at 2:00 am
Excellent. Good to hear from you.
I wish this were true. But see my post regarding a huge megawatt-scale project in California. The related article said:
Note that that is what PGE is paying, so they will have to sell the power for much more than that.
You go on to say:
I have no problem with that provided I’m not asked to subsidize it.
Generally not true. Here are wholesale prices, $1.36 to $2 per watt. But as I pointed out above, that’s far from the whole cost of the system. Also, there’s a huge oversupply of panels at the moment. The Chinese ramped up big, and then subsidies ran out in lots of countries. So panels are cheap, but not likely to get a lot cheaper in the near future, the market is still correcting. Finally, as I said above, panel costs are a small part of the whole equation.
The “many places” are generally places like California, where prices are artificially inflated. I know of nowhere that solar is a “good investment” where there is no subsidy for solar.
I don’t care if it’s large or small PV installations, the economics are not that much different. In fact, small installations are generally less efficient than large institutions, which means that prices are higher.
I admire and enjoy independence as much as the next man. If a person is getting paid by the grid to produce power, however, you need to watch out for the hidden subsidies. You say it is a “good investment, for consumers”.
Solar is a good investment in California if a residential customer is paying more than about $160.00 per month. But the reason the customer is being billed that much for their power is because PGE power is so expensive.
And why is PGE power so expensive? Because, as the quote above shows, PGE is paying “50 percent more than the expected market cost of electricity in California from a newly built gas-powered plant” for solar generated power. So they have to sell it at a high price … which is what makes solar a “good investment for the consumer” around here.
So solar is a “good investment” for consumers, but only because the consumer is already getting screwed to pay for that investment, with the ratepayer shelling out 50% above market for solar power.
Thanks,
w.
Willis, inverters get cheaper, too. Gotta echo coldlynx in that regard. The trend is towards one inverter per module, and through some as yet unforeseen magic, we’ll have modules that we directly connect to the mains in 20 years; the inverter will be integrated into them.
I agree with your comments on the maintenance costs for wind. I do research and consulting work in the power industry, coal and gas combined cycle, and based on my experience the distributed nature of the wind turbines will increase the maintenance costs particularly as they age above the EIA assumptions .
I think you didn’t consider efficiency improvements. These lower all cost components.
Willis:
Great piece. I looked at the utilization rate of Wind in Denmark which has very extensive experience over 30 plus years. The average utilization rateover the last 10 years is approximately 22% – by my calculation, i.e.,
Generated TWh*POWER(10,12)/(Capacity in MW*POWER(10,6)*365*24)
This seems to me to be a better estimate – it includes off shore generation capacity as well. (see http://en.wikipedia.org/wiki/Wind_power_in_Denmark)
What it does’t factor in is distribution costs that are typically add $0.07-0.15 per kWh. In Southern California consumers typically pay $0.2 per kWh or more so PV power produced on your own roof can be pretty competitive.
Willis Eschenbach says:
December 3, 2011 at 2:34 am
” I have no problem with that provided I’m not asked to subsidize it.”
I recently had a PV system installed which is planned to pay back in about eight years. That is based on the existing feed in tariff of 43.1p which is soon to drop to 21p for new installations. Even if the FIT is reduced to zero in the future, there will still be a hidden subsidy in that the rest of the suppliers customers are paying for the back-up supply for when the sun don’t shine.
I may not have put that very clearly, but I hope you get the gist.
Good post, Willis. Just one thing: when you complain about solar subsidies, don’t forget that fossil fuels are subsidized as well!
The two obvious errors (or call them bad assumptions if you wish):
* A 34% capacity factor for wind is just wishful thinking
* A 30 year cost-recovery period overestimates the cost of both hydro and nuclear
The 30 year period might also effect other energy sources. However the relation between capital cost and the running cost of fuel and maintenance, and their >30 year life time, makes the choice of a 30 year period effect hydro and nuclear the most.
A couple of points.
I live in perhaps the sunniest city in the developed world Perth and have a rooftop solar unit. My unit delivers around 10 times more electricity in mid-summer than mid-winter. Yet I know my electricity consumption is almost the same. Clearly no saving in capital costs.
I heard a few weeks back from someone who maintains one of the biggest wind farms here in WA that they were offline for a month because mice chewed through the control cables. Distributed energy infrastructure and wildlife don’t mix.
@coldlynx, Willis
For germany using hourly load and PV production figures over a year’s timespan it turned out that you’d need around 120 average supply-days of battery storage to make use of all your PV generation. Combining wind and PV turned out to be better (half the storage) but still prohibitive.
they really do hate nuclear!
11¢<12¢.
Solar power is still the best alternative for off-grid locations and activities, such as your boat, camping, holiday homes etc. I live in cloudy, rainy England but solar panels are appearing on roofs around the UK in increasing numbers.
http://solarpoweradviserz.com
WOW!!
Now that’s something that is worse then we thought !!!!
@Bernie
re wind power capacity factors – In Germany, it’s less:
http://www.wind-energie.de/infocenter/statistiken
Turned out to be ~17% in 2009 and ~16% in 2010 (was more close to 20% some years ago). German win power incentives are designed to ‘take the pressure from the coast’ so less efficient inland locations receive some extra compensation.
see this earlier post for cost including backup and load balancing
http://wattsupwiththat.com/2011/11/20/duking-it-out-with-foreign-investors/#comment-804066
The US has very low gas/oil prices – the UK /EU pay up to 4 times the US
http://wattsupwiththat.com/2011/11/20/duking-it-out-with-foreign-investors/#comment-804815
windpower costs: http://wattsupwiththat.com/2011/11/20/duking-it-out-with-foreign-investors/#comment-808678
cost per kwh over 20 yrs £0.060 per kWh
cost per kwh over 15 yrs £0.069 per kWh
cost per kwh over 10 yrs £0.087 per kWh
Willis,
Thanks for bringing this article to our attention. I think a potentially more interesting story lurks in the comparison between wind and fossil fuels.
A number of assumptions have been made that make wind look more competitive than it really is. One wonders if this was a deliberate politically motivated directive rather than a series of innocent assumptions…
A number of people have noticed the very high capacity factor they have assumed relative to actual experience with wind.You also pointed out the maintenance costs appear to be low. The assumed 30-year life of all the plants also favors wind. Most experts would estimate the expected life of a wind plant at considerably less than 30 years — probably 20-25 years is more reasonable. On the other hand, most coal-fired plants are likely to be used for 40 or more years. Finally, buried in the fine print is an assumption that the discount rate is set 3 percentage points higher for fossil fuels than for renewables to account for GHG emissions! First off, a tax on CO2 (or its equivalent) would raise fuel costs, not the discount rate. Second, why throw this into a comparison of economic production costs.
When all these corrections are made, one finds, not surprisingly, that the costs of wind exceeds the cost of fossil fuel generation by about the amount that wind has to be subsidized to remain competitive.
As regards adding an amount for “backup capacity” that is, in a way, double counting the low capacity factor of wind, but not entirely. The short run intermittency of wind requires additional backup, not just its low average capacity use. In a sense, a discount should be applied to account for the lower quality of the wind power — or a cost added to make it of equivalent quality like you suggest. At the moment, I don’t think this cost would appear in the subsidies that wind generators need to receive to be competitive since the wind generators do not bear the costs that the low quality of their output imposes on the rest of the system.
@coldlynx I see your point in spirit but not in practice.
If the goal is to “get off the grid”, the initial investment of a diesel generator is a fraction of solar. There is still the ongoing cost of fuel, but that’s the sort of thing you can stockpile over time when prices are favorable instead of making a huge commitment up front. You can also make biodiesel pretty cheaply if you buddy up with some restaurant owners. 🙂 Of course, there isn’t enough waste oil for everyone to do that. Generally I’m not a fan of any biomass fuel that requires fertile farm land to produce. High-lipid algae would be perfect if it could be grown in the desert or ocean and processed efficiently, but for now it makes solar look cheap.
But really I have to question the value of getting off the grid (if the grid is available) because the grid is relatively cheap and convenient. I don’t see how completely disconnecting from the grid would make me more “independent”, especially if it means a significantly greater fraction of my 10-hour day must be spent on electricity in order to sustain that independence. I do have a generator and enough fuel to last through a couple of weeks of a power outage, which I consider the worst-case scenario. Any worse scenario (e.g. war), and I’m not going to hang out in my house whether it has solar panels or a backup generator.
“But here’s the problem. Solar cell prices have already fallen so far that only about thirty percent or so of the cost of an industrial-sized solar power plant is solar cells. The rest is inverters, and wiring, and racks to hold the cells, and the control room and controls, and power conditioners, and clearing huge areas of land, and giant circuit breakers, and roads to access the cells, and the site office, and half a cent for the transmission lines from the remote locations, and labor to transport and install and wire up and connect and test all of the above, and …”
This is why the government wants wind and solar. It puts puts more people to work even though it is an inefficient use of capital. How many union workers does it take to change a light bulb? Six: One to get the ladder, two to hold the ladder, two watch and one to change the light bulb.