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 …
Re: Subsidies
The latest (2010) EIA report is here. Renewables get 55% of all subsidies, most of it going to wind.
About half of nuclears subsidies is in the form of R&D.
RE: Dave Springer: (December 5, 2011 at 7:28 am)
“The problem with these is that liquid flourine at 700C temperature is so highly corrosive that few materials can withstand it for very long. The second problem is that the few materials that don’t rapidly corrode cannot withstand the high neutron flux from the liquid fuel.
“These two problems combine into one where there are no known materials from which you can construct pumps and plumbing to shuttle the liquid fuel around that won’t fail so quickly that the inspection and replacement interval makes the whole enchilada economically impractical.”
As far as I know, this was not a problem with the Oak Ridge demonstration unit. I understand the fluoride salts used combine fluorine with base elements to which it is more strongly attracted than almost anything else. Highly connected scientists from China are reported to be in possession of all data extant from the original Oak Ridge demonstration project and working on developing their own version.
”This is simply a bunch of people trying to make a fast buck by getting research funding and ignorant idealists who are willing to give it to them.”
That is always a possibility.
”Ultimately the sun is the only practical energy source that can meet our needs into the foreseeable future. Fortunately there’s far more sunlight than we need and there’s absolutely no engineering brick walls in the way of being able to produce cheap, abundant, carbon-neutral liquid hydrocarbon fuels by employing genetically modified microorganisms to turn air, water, and sunlight into those fuels.”
This sounds just like another form of solar power, perhaps ‘bio-solar.’ One might wonder how many solar petroleum trees or solar algae vats would be required to generate 100% of the power used by the state of California, how large an installation would be required, and how many people would be needed for their maintenance. My guess is that one would be lucky to collect, on average, 100 watts per square yard by such methods. With abnormal microorganisms used on a large scale, there is always the risk of them escaping into the wild and causing a massive change in the chemistry of the planet.
“ The United States government already built one and the classified details of its operation over ten years back in the 1950′s and 1960′s isn’t inspiring any new investment in it. One might wonder why the only nation in the world with actual experience with LFTRs is panning the notion of taking a second look at it.”
Of course, China is reported to have the surviving data from those experiments now. With multiple technical options available, there is often a tendency to standardize on the first method developed and suppress the development of all incompatible alternatives. I suspect the current administration looks at nuclear power as did Ralph Nader when he called it ‘poison power.’
Dave Springer says:
December 5, 2011 at 6:24 am
Dave, you can be as deliberately dense as you want, and pretend not to understand. But underneath, you know very well that my point is that one fossil fuel generator = a dozen windmills or more. So the maintenance is harder for windmills. Which you knew as well.
Give it up, my friend. You are just making people point and laugh at you, and I doubt that is your intention.
w.
TimTheToolMan says:
December 5, 2011 at 5:07 am
Tim, your fantasies about future solar costs immaterial. Unless you can show that the cost is not that high in the long term, why do you believe it? And if you can’t show it …
In any case, the cost right now for grid-connected solar electricity is about three times the cost of fossil electricity. For your fantasy to come true, every single cost involved in solar, from purchasing the land and installing the racks and purchasing the panels and every other part of the cost, would have to drop by a factor of three.
I don’t see that happening, regardless of the strength of your belief. The industry is far too mature for that to happen.
If you think initial costs are somehow immaterial and running costs are all that count, remind me not to let you invest my money … that’s just wrong.
That’s exactly why we are discussing levelized costs, Tim, because they avoid all those problems. Please try to follow the discussion. Levelized costs use the net present value of future activities precisely to take care of the issue you are discussing.
In addition, you can’t just add another panel to an existing system. To add that panel, you will most likely have to upsize the inverter, and increase the ampacity of the wiring, and purchase new, larger breakers, and increase the number of racks, and buy new land to put the racks on … you are a “toolman” and you don’t know this?
That’s like saying “Once a house is built, it’s cheap to add a toilet, because a toilet doesn’t cost much”. Well, no, it’s not cheap to add a toilet, you may well need to extend the bathroom and to upsize the water pipes and to dig a bigger septic system and …
That’s true. It would be great if energy were “not resource based”. It would be wonderful to inhabit a world where sunshine could be turned to electricity for free.
And by the same token, a world where everyone was always nice and kind to each other would, as you say, “be a better one for many reasons eventually both economic and political.”
Unfortunately, both of those are just fantasies. As you seem to recognize at the end …
You might profitably consider that sometimes, the path of least resistance is the path we actually should be following …
Thanks as always for your thoughts,
w.
I do wish some of you people would learn how to run a “life of project” financial analysis on a “levelized”, “discounted cash flow” or any other basis recognized as valid by investors and banks the world over. You would then see that capital costs, fuel costs, other O&M expenses and the time-value of money are all essential components of such an analysis. Any one of those elements can swamp all the others and render a project uneconomic.
If you will take the time and make the effort to do that, you will recognize the foolishness of many of the pro-solar statements made in many of your comments, including the following grand prize winner:
“The cost is born up front and whilst you may not immediately see the benefit of that, I certainly can.”
That statement exposes woeful ignorance of “the time-value of money”, a fundamental element in any financial analysis. The bottom line is that centralized, photovoltaic solar, even taken to its most optimistic and theoretical best conversion efficiency, useful economic life and capital cost limits gets sunk on “capital cost per average Kwh of output”. That’s the bottom line for unsubsidized central solar and that was the basis for Willis’ conclusion. It wasn’t an arbitrary or uninformed opinion. It was a rational conclusion that no amount of “hand-waving and posturing” should be able to change.
Dave Springer says:
December 5, 2011 at 9:30 am
Dave, that’s a slanderous lie. I am one of the few climate bloggers willing to admit my mistakes for all to see, and I have done so quite publicly when I have been wrong.
In other words, your petty jealousy has once again wrested control of your mouth away from your brain, and it is busy parading your childish vindictiveness up and down the town square. You really should do something about that, it’s not helping your reputation at all. You seem overall like a pretty intelligent guy … but man, sometimes you couldn’t prove it by your actions.
What is your beef with me, Dave? What did I ever do to you to start you on this path of unending enmity?
It’s not the subject matter, because no matter what I write, you always show up to do your gorilla trick. That’s the one where you defecate in your hand, and you fling it at me and the other guests … which is quite impressive in its own way, but likely not in the way you imagine, because at the end of the day, I’m not the one whose hand smells bad.
w.
Claude Harvey says:
December 5, 2011 at 12:06 pm
Thank you, Claude. Having worked as the Chief Financial Officer for a $40 million dollar a year company and run many, many cost analyses, I’d like to say that the amount of wishful thinking and fiscal ignorance shown by some of the solar advocates in this thread is shocking. Unfortunately, that kind of financial foolishness and misunderstanding is too common to shock me any more …
w.
Dave Springer says:
December 5, 2011 at 7:28 am
Dave, that’s an interesting idea. Do you have a citation for that claim? If the liquid fluorine compound is too corrosive to handle or pump or pipe, I find it difficult to believe that you are the first guy to notice that the corrosion problem was a deal breaker … or that scientists and promoters of the technology are ignoring that. I see references to corrosion in the literature, and people talking about how to control corrosion in LFTR reactors, and a special metal was developed to reduce it (Hastelloy-N nickel), but I don’t see anyone who claims it is a deal breaker.
w.
Willis, and all commenters
Interesting analysis, I agree with your critiques of the information as published by EIA. There’s something else, though (I scrolled to Reply when I got ~1/4 way through comments, so forgive me if somebody else covers this) you hinted at only briefly, when you made the statement, “…will not be economically viable any time soon.” The numbers you published are static numbers, a snapshot taken at a particular point in time. For solar and wind to become competitive vs. fossil fuels, it follows we must see a rise in the price of fossil fuels? But what does that do to the production cost of not only solar panels but all the appurtenances you mentioned, as well as up-keep costs? My bet is all those costs increase, as well. I went to college and got a mechanical engineering degree with the vision of designing the replacement for fossil fuels. When I took elective engineering courses, I concentrated on solar thermal design. Our analysis found that the best you could hope for, with a cheaply built system, was a 10 year simple pay back. But, we logically reasoned, just as is reasoned today, that mass production will reduce the price of capital in a solar system, while the price of petroleum products will do nothing but increase. Well, apparently there was an invalid assumption in there someplace, or we failed to acknowledge the interconnectedness of prices of the choices, because here it is 35 years later, and still when I evaluate solar to replace fossil fuel generated electricity, I still get a simple payback in excess of 10 years, and the number I get today is even bigger than the one I got 35 years ago. You can change your “…anytime soon.” to NEVER.
@crosspatch (and Hultquist)
Google frack acquifer
mike g says:
December 5, 2011 at 3:39 pm
I find it laughable when people wave their hands at some huge mass of materials and say the answer is in there. Particularly when they write three words and mis-spell one of the three.
Mike, if you have a point, and some citations to back it up, how about you just make it? Lay out your claim. Then bring on your best pieces of support, your best citations for your claim. Because I hate to tell you, but I’m not googling a dang thing. Google frack “acquifer” yourself.
Fracking has been used for decades. As far as I know there are no documented cases of fracking disturbing the groundwater, but it’s a big planet. Out of the tens of thousands of times that fracking has been used, I suppose it is theoretically possible.
You need to be cautious in your claims. There certainly are cases of natural gas in the groundwater. This is a natural and not unusual occurrence all over the planet, and as is always true in natural systems, is much more common in some parts of the world than other parts. So don’t bother sending us links to people lighting what’s coming out of their faucets. That happens not infrequently, and without any fracking nearby.
w.
This seems strangely appropriate. At 0:30 in this video, what do you suppose is on the roof of this house?
On top of everything else, do you suppose they got solar subsidies as well?
Cyrus P. Stell, P.E., CEM says:
December 5, 2011 at 2:03 pm
Very interesting question, Cyrus. It’s particularly important for those items with high capital costs. Let me do a quick back-of-the-envelope calculation here.
Suppose fuel price doubles. Lets assume that as a result of the energy price doubling, the price of everything manufactured goes up by say 20%. That seems like a conservative assumption regarding a doubling of fuel.
In that case, gas combined cycle fuel costs would go up from about 4¢ to about 8¢. Capital and operating costs would increase by about a half a cent. The detailed calculation shows that the net result of a doubling of fuel prices is that the cost for gas combined cycle goes up by 4.5¢ per kWh, which gives a price of about 11¢ per kWh with doubled fuel costs.
Now compare that with solar, where the fuel costs are zero. But all of the capital and operating costs would go up by 20% if fuel price doubles. Solar is currently at 21.5¢ per kWh. A 20% increase in those costs is 4.3¢ per kWh, giving a price for solar electricity of about 26¢ per kWh with doubled fuel costs.
So when fuel doubles, gas fueled electricity goes up by 4.5¢, and solar electricity goes up by 4.3¢. Gonna be a long chase …
This is why I prefer engineers and business people to scientists for real world questions of this type.
w.
If anyone you know happens to live in Gainesville, Fla, and you/they obtain their electrical power from the local public utility it’s too late to sign up for the utilities 2012 FIT program (which pays generators $.32 kwh). You can still get into their Net Metering Program- which will pay you about $.115 kwh for energy you send to the grid. These programs (and GRU’s rebate program) are noted in the link below-
https://www.gru.com/YourHome/ProductsServices/solar.jsp
It was nice to see that GRU is calculating a PV systems output based on the California AC rating method.
It will be interesting to see how GRU is going to allocate their increased costs, for the PV they are supporting- https://www.gru.com/Pdf/calculatingElectric.pdf- Their Fuel Adjustment per kwh seems like a good place to allocate these costs.
Willis writes “That’s exactly why we are discussing levelized costs, Tim, because they avoid all those problems. Please try to follow the discussion. Levelized costs use the net present value of future activities precisely to take care of the issue you are discussing.”
No Willis. That report is written in the world where fossil fuels reign and energy supply has large components of costs associated with exploration, extraction, processing and distribution on an ongoing basis.
You’re not following my reasoning and instead simply spouting back what the report says. The writers of that report cant possibly take all those factors into account when coming up with a long term energy supply cost of PV solar with any accuracy because eveything is intertwined.
Disagree with it if you want, but at least disagree with reasoning as relates to the inadequacies of that report rather than ignoring it entirely.
Claude writes “That statement exposes woeful ignorance of “the time-value of money”, a fundamental element in any financial analysis. The bottom line is that centralized, photovoltaic solar, even taken to its most optimistic and theoretical best conversion efficiency, useful economic life and capital cost limits gets sunk on “capital cost per average Kwh of output”. ”
No Claude because you’re ignoring the fact that the reduction of cost per average Kwh of output due to decreased runnig cost feeds back into the subsequent production cost and nobody but nobody can accurately forcast the impacts of that.
Why does not Germany use it’s abundant brown coal and nuclear plants to spin the wind turbines?
“Claud also wrote “The bottom line is that centralized, photovoltaic solar, even taken to its most optimistic and theoretical best conversion efficiency”
Oh and one more thing, who ever said anything about centralised PV solar? One of the big benefits of PV solar is that it can easily be distributed which benefits in increased redundancy and decreased transmission costs (a less loaded network).
TimTheToolMan says:
December 5, 2011 at 6:11 pm
Thanks, Tim. I thought that I was clear about where I disagreed with you. You talked about the incremental cost to add a single panel. I objected that you had left out the other incremental cost of wires and the upsizing of the alternator and the additional rack to mount the panel and the labor to do all of that …
So, where is it that you think I’m not following your reasoning?
Finally, I’m not “spouting back” anything. I objected that you had left out the other incremental costs.
w.
Cyrus:
The numbers you published are static numbers, a snapshot taken at a particular point in time.
You make an important point. I think, though, that we need two snapshots, and they have different parameters.
Snapshot A: I buy solar today and pay a stiff price differential on capital expenses. If prices remain stable for 20 years, I lose.
Snapshot B: Twenty years later prices have not remained stable.They have in fact risen considerably, thanks to the combined efforts of the California Greenshirts and Federal voodoo economists increasing the money supply. Coal still retains a huge advantage over solar for new installations, as you and Willis have described, with capital costs for both solar and coal rising proportionally. However, Snapshot B does not include capital costs; these were paid 20 years ago. The fuel costs for solar, essentially zero, have not changed. Thus it is possible that the long-term economics in an inflationary economy could even make solar competitive. (I am, of course, not addressing any of the non-economic problems with solar.)
The exasperating thing is that this scenario is exactly what the Greenshirts are trying to achieve with California’s cap and trade scheme. The individual consumer winds up having to protect himself by being the first to invest in something that would make no sense in a stable economy.
Well, nuts. I needed a after ‘point in time.’
There’s gotta be a way to show this. You know, a / and an i between a . Mods, help!
TimTheToolMan says:
December 5, 2011 at 6:26 pm
Not only can nobody forecast the impacts of that … I can’t even understand that.
I think I understand your words. You say that
1) Solar running costs will decrease (for unknown reasons).
2) This will reduce the cost per kilowatt hour.
3) This in turn will “feed back into the subsequent production cost”.
Although I understand the words, I fear that I don’t believe what they say. Why will the running costs (presumably of solar) reduce?
In any case, solar running costs are only two cents per kWh, so how can they reduce much? Suppose they dropped by 50% … that’s 1¢ per kWh.
And how will that one cent reduction feed back into production cost?
w.
TimTheToolMan says:
December 5, 2011 at 6:31 pm
While there are advantages in distributed generation, there are also disadvantages. One-off rooftop installations are generally much more expensive to put in than industrial scale rack mounts. Maintenance on rooftop units generally ranges between “little” and “none”. It means lots of small switchgear, which is more expensive than single large switchgear. Same is true for inverters. Redundancy also means a whole lot more generating units that need to be reliably disconnected from the grid when there is a power outage, to keep from frying the repair personnel.
So it’s not all savings, there’s costs as well, and certainly not enough net savings to make up for a 21¢ per kWh price tag.
w.
Only read first few dozen comments, so this may have been said already:
There are so many taxes & subsidies & etc, that the actual, real, costs are pretty much impossible to determine. Last time I read up about this, after a whole lot of digging one item was spectacular clear: wind was by far the most expensive option, greatly in excess even of solar. (More than an order of magnitude above coal.)
In other words, I don’t trust your graph. At all. I think it is based on numbers that are flat-out lies.
Another point: inverters have an average lifetime of maybe 6 years. Which means that they have to be replaced that often: so integrating them with the panels (25+ year lifespan), would be patiently idiotic. Additionally, the manufacturers of these devices are on record as saying that they do not foresee these lifespan values changing by very much (are inherent to semiconductor components & failure rates). Also, the price-drop curve for the inverters is lagging FAR behind that of the panels… And in any case such curves DO NOT continue forever and ever and ever more downwards: solar-device costs are NOT equivalent to CPU cycles!!! Otherwise we would all be driving 10c BMW’s, pumping 0.001c/gallon gasoline-alternative… none of which, in case the hippies have not noticed, we are not.