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 …
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Here is a weed covered 20 acre solar installation in green Germany that has only been in operation for about two years. Even with subsidies it apparently it isn’t worthwhile to do proper maintenance.
http://notrickszone.com/2011/07/04/weed-covered-solar-park-20-acres-11-million-only-one-and-half-years-old/
I have not come across a wind project at less than 13c per kWh excluding back up costs, and that one was in an especially good place and had some hidden tax breaks. 20c is much more typical – if you are lucky.
Most of the rest of the world of course has to pay about 3 times as much for natural gas at the moment compared with North America, so coal is coming in at lower cost for now elsewhere.
Solar PV is fine for the householder who wants it – but please do not continue to expect everyone else to subsidise it and take any excess at ridiculously high prices in the euphemistically named feed-in tariffs – which are subsidies to the rich from the poor.
Espen says:
December 3, 2011 at 3:51 am
Good post, Willis. Just one thing: when you complain about solar subsidies, don’t forget that fossil fuels are subsidized as well!
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Really??
Can you name those “subsidies”??
Don’t confuse the tax code with “subsidies”
I understand the 25-30 year life on wind installations is a pipe dream–more likely they wear out and self destruct in about 7 years, depending on quality of manufacturing, service utilization and attention to maintenance. It will obviously require some time before the final numbers are in, but from what I’ve seen so far, the service range in years is much closer to 7 than 25-30. In that case, wind power becomes even more prohibitively expensive. I detect a “green” agenda in the numbers put forth by the IEA, as Peter Hartley above suggests.
Willis Eschenbach says:
December 3, 2011 at 2:34 am
Exactly, Willis! That’s consistent with the saying: “Anytime the government gets involved, it creates a surplus in one sector of the economy, a shortage in another, and the taxpayer makes up the difference.”
Obviously, free market, non-governmental investment decisions aren’t hindered with such illogical and destructive utilization of capital ($).
Willis – I have nothing but respect for your views – but you do seem to fail to raise the crucial flaw as far as solar is concerned.
For twelve hours a day (averaged), every day of the year, anywhere on the planet – solar panels produce zero – because its dark.
E.On is one of Germany’s biggest operators of land-based wind power generation (6+GW in nameplate capacity); in addition to their other generating facilities. Their areas of operations stretch from the North coast to the Alps; roughly 1000km. In their wind power report of 2005, they published a utilisation of about 16% and a conventional shadow capacity (spinning reserve) requirement of 98%. They state that wind power is limited due to its unpredictable behaviour; which requires a electricity separate grid from the main one, to reap the full potential. In terms of expanding capacity; they (IIRC) also stated that all the premium wind areas are being used, so further expansion would be to sites with poorer returns.
So more wind power means more power stations capable of ramping up and down quickly to fill the holes in demand that wind power cannot supply. Oh, and lots more high-tension power lines.
Still, it’s good for the Austrian economy and investors, who are expanding their pumped storage capacity; “buying” surplus electricity from (e.g.) wind power at a peppercorn to pump up the storage; and then sell back electricity at a premium, peak price when it’s desperately needed. It’s worth billions of Euros a year. They call that electricity “generation”, for some reason only comprehensible to politicians and marketing managers. So they’re all in favour of wind power in Germany. (And extremely peeved at the Czechs for having the temerity to expand their nuclear power capacity.)
Wolfgang:
Thanks for the link. There is apparently a lively debate in Denmark over the continued expansion of wind generated electricity with a target of 50%. I am looking to try to nail down the actual costs of wind. The Danes put a huge tax (beyond VAT) on household electricity consumption which turns the estimated generation and distribution costs from about average for the EU15 to the most expensive. It is unclear where that tax money goes.
The one thing you all perhaps realize but are not saying:
According to the greens, cheap, available electricity is bad. Expensive electricity is *good*. It is ther *goal*.
I agree with Willis’ conclusion that, even if solar panels are free, the system costs will not drop dramatically. The recent plunge in solar PV panel prices is indicative of an industry whose profit margin has imploded. Some estimates predict over 95% of solar PV companies in China will be bankrupt and gone by end of 2012.
Another interesting trend is the large number of planned large solar thermal projects that have switched to solar PV this year.
The DOE Sunshot program has 2020 goals for solar PV of $0.5/W for panels, $0.4/W for balance of system, and $0.1/W for power electronics. This, of course, is based on peak DC power at beginning of life, and it does not include labor. Even if these goals are met, solar PV still requires backup energy storage, be it hydro, nuclear or fossil fuel in tanks or coal sheds.
DirkH- “The trend is towards one inverter per module”
I agree with this. I finally decided to install grid-tied solar PV for my home. The problem with one inverter per module today is that the inverter is now almost as expensive as the module. I just paid $0.80/W for the panels, but I see prices of $1/W for the micro-inverter vs $0.5/W or less for multi-panel inverters.
This will change. It is clear to me that the inverter electronics could easily be integrated into the module envelope without any new engineering breakthroughs. I suspect this will start to appear (at a premium price) in the next few years.
I decided to go DIY for my solar PV project after I received a contractor quote of $10/W for what I wanted to have installed. My DIY total cost (panels, inverters, wiring, support structure, feeder to house) will be about $1.15/W after the federal tax credit. Interestingly, this is already close to DOE’s 2020 goal, since my DIY also does not include the cost of labor 🙂
Our utility offers net metering integrated over one year. Any excess generation is reimbursed at the wholesale cost of bulk electricity, about $0.05/kWhr.
I estimate a break-even time of about 6 years here in Florida. Unless we get bulldozed by a major hurricane, of course.
Wolfgang: What is the translation of 37,3 Mrd kWh? I assumed it was a million kWh. Thanks.
Will-
You pure speculation about wind power, and small easy to maintain generators is a tactlessly bs argument. Just admit wind works.
Old Construction Worker says, “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.”
If you’re an old construction worker, you no doubt know that you grossly underestimate the number of union workers it takes to change a lightbulb. I’ve dealt extensively with unions, and can tell you that it will take at least two journeymen electricians and one apprentice to ensure that the power is off to the line the bulb is on. Then the supervisor, after moving a small stack of 2x4s out of the way, will call a fork lift operator to move a couple of pallets of construction materials that will be in the way of the light-bulb changing operation. He’ll then run around the site to find a laborer to help him carry the ladder to where it is needed. Then the six you describe will proceed to change the light bulb, after which the above-noted two journeymen electricians (and one apprentice) will undertake to restore power to the line feeding the light bulb. The fork lift operator will then return the pallets of materials to their earlier place while the laborer does likewise with the 2x4s. Then the supervisor retires to the office with the union stewart to discuss the grievance the union is filing over the supervisor’s moving of the 2x4s and assisting in carrying of the ladder, instead of having laborers perform all such duties as required by the labor agreement. The grievance will then be heard by the construction superintendent and the union’s district rep, and will go on to a panel of three arbitrators, which will eventually award the most senior laid-off laborer $100,000 in back pay since the company should have had enough laborers on the site to ensure that bargaining unit work was only performed by laborers union members.
You obviously haven’t dealt much with unions if you think only six could possibly change a light bulb.
“Check out the windfarms and count how many of the fans are not turning at any given time …”
I did notice that both wind turbines at East Midland Airport were actually removed from their hubs and brought to the ground for maintenance within a few months of original installation. That is not cheap at all.
The other consideration with wind is we don’t know what figure they are using for how much each actually generates as a proportion of its capacity. Remember real figures have come out not much more than half of manufacturers estimates, so if the latter were used to calculate these you will be close to doubling all costs.
Contrary to the above, it IS extremely likely that gas prices will triple or quadruple if a large-scale shift away from coal to gas occurs, which is why it is not happening with the present low gas prices. Not to mention the fact that the EPA and states are going after fracking because it is push hydrocarbons and god knows what other chemicals into the water table and biosphere. And, don’t forget the peer-reviewed research covered in the past on WUWT that places a higher carbon footprint on gas than coal due to all the methane that leaks out into the atmosphere from the fracking operations.
Willis, I think you are being generous to solar PVs when you assume that gas turbines can provide adequate back-up for when solar PVs can’t generate power (2c/kWh). If you have a look at the generation profile of a solar PV unit you will see that it can switch off and on almost instantaneously when a dark cloud passes overhead, or there is some other shadow. To respond in time you need the OC gas turbines running in stand-by mode (i.e. add the cost of burning gas) and battery/flywheel capacity to fill the gap until the gas turbine comes up to speed. If other sources can’t respond quickly enough then the voltage/frequency will drop and protection systems within the network will start load shedding.
The only way we get away with it at the moment is because solar PV generation is a relatively small fraction of the total generating capacity, and there is enough spinning reserve from existing coal/gas/nuclear power stations to cover. So the idea that costs will come down once we get ‘scale efficiencies’ may actually work in reverse with the cost of back-up escalating.
Also, the 2c/kWh capital cost for an OC gas turbine is probably an amortised cost assuming the turbine generates at a certain level over it’s expected lifetime, say 20% for an OC gas turbine peaking plant. If that now drops to say 10% to run in standby mode, then won’t the capital cost per kWh produced double to 4c/kWh?
But then we have to consider that using gas turbines as back-up is only an interim measure as gas still generates CO2. So to comply with the expectation of people putting solar PVs on their roof (that they are generating no greenhouse gases) backup will need to be purely from battery/flywheel etc. Then we start talking somewhere around 10 times the cost of coal/gas/nuclear for intermittent souces such as solar and wind. For the purists, they may want to do this, but I object when they start increasing the power bills of people on lower incomes through the subsidies.
Matthew W: it’s not my idea to call it subsidies: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2ygdsSj.KQI
Another facet not fully considered in Willis’s excellent post is how over time and an increasing trend (Govt mandated of course) in the % of total power needs generated by solar and especially wind, the coast of operating traditional fossil fuel generation increases as density (revenue generated per coustomer) of their revenue stream decreases. The greater the percentage of wind and solar, the more expensive traditional sources become,
California citizens, already suffering from this, will be taught again in spades if the current policies are carried out. Energy is the life blood of every economy. If one wishes to reduce the population growth of a third world country, then simply make energy cheap and abundant. Current policies, predicated on fear of large poulations, will also reduce poulation growth, but tragically this will be through famine and war.
The leveling fails to take into account the lifetime of the generation system. The life of a wind farm is actually considerably less than the theoretical figures quoted here. There are already over 14,000 abandoned wind farms in the USA (google it). They are becoming an environmental hazard. Willis you alluded to the problem of “the trek you’ll have when you forget to bring the size #2 Torx head screwdriver …” but there will not be a long queue of engineers wanting to work on top of a 400 ft pylon in winter gales in the middle of a rough sea. Unfortunately, the politicians have been listening to salesmen not engineers.
The problem with small scale local installations of solar panels – i.e. residential installation, is that all other users of the grid pay for it. I live in upstate NY, a place where only a fool would pay the $100K + cost to energize their home with solar or wind yet, many people do. They are told that they can sell excess generation back to the power company.
These numerous sources of small random and intermittent “pops” of feedback to the grid are of no value to the power company by the simple nature of their randomness and intermittancy. The local grid has to supply 100% backup for these users while gaining absolutely no advantage from the electricity that they produce. In addition, NYSERDA a government organization, hands half of the cost of the installation to the individual user.
So, as a regular electric customer, I am paying for both the initial installation subsidy and the increased cost per KWH that results from the mandated buyback of worthless power by the grid operator.
I have no problem with off-grid use of individual windmills and solar panels but the grid connected homes with solar or wind do nothing but waste the materials used to build them and the energy used to back them up all at the cost of evveryone else in the neighborhood.
Ny staste assessments to cover these costs add up to about $.015 /KWH and nearly $.05/therm for gas. Thank you greenies, renewables, and all of you eco-schemers making a buck on the backs of your neighbors.
Some time ago, I downloaded some insolation data from a nearby agricultural research station and plotted the result.
The graph shows total insolation (solar energy) onto a horizontal surface, over a month. Click here if no graph shows
It illustrates the high variability of “supply” over a year. A picture that those selling solar probably don’t want their prospective customers to think or to be able to make a rational judgement.
What the graph doesn’t show is the number of successive the dull days, when there isn’t enough sunshine to generate any worthwhile amount of electricity. To do that, I’d have to pick an arbitrary figure for “dull” like 1 standard deviation below average. And then you get a maximum of 2 weeks of dullness. But I’m not sure if those were the weeks in which the person responsible for cleaning the bird droppings off the heilostat was on vacation. Between 3 and 5 consecutive days of dullness are common. (I really need to get to grips with R because analysing a decade+ of daily weather data in a spreadsheet is a RPITA)
I’m a big fan of solar panels for individual consumers. They add a lot of flexibility and resilience to your life-style. Large-scale utility stuff: Never saw the point to it. Among other issues, if you make it really large-scale you come up against real undoubted human-induced warming, though probably not on a huge scale. Cover a huge area in something black and intentionally non-reflective, which converts 15-20% of the incoming solar light to electricity, and what happens to the other 80-85% of the incoming solar energy? Can we say waste heat? The immediate surroundings of a large scale solar plant will be much hotter than they would be naturally.
You can get higher efficiency in solar, but currently at a cost that means it only makes sense to use the cells in concentrator systems, which are okay for large-scale systems, but I wouldn’t want on my roof because of the heat issues.
I wouldn’t write grid-tie solar electricity off completely though. The key is to get the efficiencies up inexpensively and the balance of system costs down. Pure silicon cells are approaching the theoretical max for the technology, but people keep finding ways to squeeze a few more percent out of it, and I suspect that someone will figure out a way to mix materials in an inexpensive way. Hit 30% efficiency and a lot of the balance of system costs go way down because you’re working with smaller panels for unit of electricity and that impacts land used, labor, etc. Barring a breakthrough that won’t happen before 2016, but long term higher efficiency is what you really want in solar.
Nice article Willis. In general it looks fine. I’m a bit surprised that geothermal is so inexpensive. I assume that the costs are some sort of blend of existing sites which are highly optimized. I wonder if they include the disposal costs of high temperature brines such as those exploited in the Imperial Valley. I also wonder if the costs are lower than those that would actually be encountered if a serious attempt were made to tap geothermal resources on a large scale. I’m dubious that there are that many high grade sites available.
I agree that onshore wind costs seem too low. It seems to me that as a practical matter the costs of any large number of turbines should include the costs of backup generation, pumped storage or some other sort of energy buffer.
I also wonder whether solar costs don’t overestimate capital costs. I have trouble envisioning capital costs that high for PV installations in locations like the Mojave desert playas — no trees to clear, land lease should be cheap?, No need to construct service roads? I prowled around some in the paper and links but couldn’t find much information on exactly how the costs are derived. I imagine it is there somewhere. I suspect that the table that shows minimum and maximum costs is mostly latitude driven.
The very first hydroelectric plant was installed in 1868. It is still operational with the original equipment.
So can the figures be reworked to show say 10 years for a wind turbine and 100 years for a hydro scheme.
The results will show a very different picture to that posted. Indeed the new chart should be publicized and the creators of the first bought to book.
Willis, excellent essay. I agree that some of the numbers for “favored” sources seem optimistic.
I used the EIA figures for actual electricity production for 2010 by source and the installed nameplate capacity for that year to arrive at the following capacity factors.
Solar PV & Thermal 1299 Million kwh 987 Mw installed CF 0.15
Wind 94647 Milliom kwh 39516 Mw installed CF 0.27
If the installed nameplate capacity is for the end of the year, the real CF may be higher. I am assuming that these two sources are always feeding the grid when ever they can. In the meanwhile, much less expensive sources are held in standby or spinning reserve.
I was wondering how the windfarms out West handled the high gusty winds earlier in the week. Anyone know. That might have an impact on estimating maintenance costs.