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 …
In Ontario the FIT program solves the problem with solar power not being able to supply power at night or when it is cloudy. The FIT program requires you to have two meters. One that measures solar production, and the other that measures mains consumption. You pay about $.10/kwh for mains power, and are paid about $.50/kwh for solar power.
In other words, the power company will pay you 50 cents for the same thing they sell to you for 10 cents. Question: How much solar power in Ontario is the result of “leakage” from the mains to the PV systems? How many batteries banks backing solar arrays selling power at $.50 are actually being topped up from the mains at $.10 to increase efficiency? So long as you kept this within reason, how could it be detected?
Given the financial incentive, isn’t large scale cheating inevitable?
Solar panels with built in inverters would be a fantastic idea. No need for expensive wiring. Simply plug them into any outlet in the house, and as the sun shines, your power meter will slow down. Add enough panels and your meter will run backwards – unless of course you have one of the new smart meters.
Willis:
Does wind work as some claim? Have a look at the distribution graphs a the bottom of this page. The other wind sites are mapped as well — see the index. Note the median point — showing that 50% of the time the output is 17% of faceplate or less. Note the mode — the most common output is Zero (0).
http://ontariowindperformance.wordpress.com/2010/09/26/chapter-4-4-7-wolf-island/
Wind power requires 100% backup by another reliable source — as does solar. Unless of course the sun can be made to shine throughout the full 24 hour day — all year long. Maybe in the “New Warmed World” the wind will blow all day — but we are not there yet.
The wind dies out completely from time to time over the entire province of Ontario — see section 3.1 of the site. If people can solve these problems maybe renewables have a chance. Till then…
Sunspot says:
December 3, 2011 at 2:16 am
Yes, and Denmark has the highest electricity rates ($0.43 kWh) of all developed nations, of all nations identified in this table: http://www.eia.gov/emeu/international/elecprih.html
Yes, it is tough being green, but that is perfectly alright, as long as it is Joe Sixpack who is paying for it.
Many thanks for making us aware of this very useful information.
As an alternative to taking capital cost plus operating cost as the most important figure, one might take the view that the capital cost has less importance the more one thinks in the longer term. Presumably the capital cost is over the lifetime of a power plant, a few decades. On that time scale, we will probably be needing to substitute for large quantities of energy we now derive from oil. Noting that the replacements will need to come from different energy subsectors, and that corporate resistance will continue, society might decide that lack of resilience is a major externality. In this case, it could be instructive to look again only at the operating costs, with the idea that society might be well advised to make an additional investment in the future.
In this light, and if one is skeptical of the operating cost of wind, then the low cost options that can come on line in sufficient quantity are nuclear and solar PV.
I expect Willis will object to this interpretation; just saying that good data are food for many different thoughts.
Espen says:
December 3, 2011 at 6:35 am
“Matthew W: it’s not my idea to call it subsidies: http://www.bloomberg.com/apps/news?pid=newsarchive”
Several comments. First that is an ancient article covering a period up to 2008. Does anyone have a clue as to how much subsidies to renewables have increase since 2008 under Obama?
Second the Bloomberg article admits that the fossile fuel do not receive subsidies but rather cites tax credits as follows
“The largest of the subsidies for fossil fuels in the report was a tax credit oil and natural gas companies can claim for paying royalties to other governments. The institute’s report finds that credit totaled $15.3 billion over the time period.”
As indicated by others that is part of the tax code available to all industries, not a subsidy of the sort the Administration hands out to Solyndra, etc. Also keep in mind that the large US oil companies earn over 50% of their income from overseas investments/business. Does anyone believe that it would be beneficial for the US to tax foreign income returned to the US without giving some form of credit for foreign taxes paid? No foreign earned income would ever arrive on our shores if that became the tax policy, and many companies might just relocate overseas. Also because of lack of oil/gas investment opportunites in the US due to numerous restrictions the investments in oil/gas are already moving overseas. 10 oil rigs have already left the Gulf due to the administration restrictions post BP spill. Oil rigs are expensive and take time to build so that is lost production for an extended period, lease revenue loss, and royalities that are difficult to replace.
‘From the Article:
“Also included in calculation of subsidies are the U.S. Strategic Petroleum Reserve — an emergency oil stockpile — and the Low-Income Home Energy Assistance Program, which helps some consumers pay for heating and cooling costs. ”
Would any reasonable person count these as subsidies to the oil companies. I thought the Strategic Reserve was created for energy and national defense security, silly me.
Finally to inculde Low income Energy Assistance.. as a subsidy to oil/coal indicates the agenda is to distort the facts rather than provide useful information. Nothing is credible in the Bloomburg article it is pure propaganda.
I question the wind capital cost numbers: it is very unclear whether the EIA backs out the massive subsidies which every single wind electricity installation receives. If said costs are also modified via feed in tariffs or some other legislation like the California renewable energy mandate, this also distorts ‘true’ cost.
A number of comments asserted that fossil fuels are being subsidized, while a good number of responses set those wrong assertions straight.
Some years ago, when the price of gasoline was at about $0.75 a liter in Alberta (and about $2.40 a liter in Portugal), I ran across a study of world-wide gasoline prices at the pump, done by a Calgary consulting firm for the oil industry. Unfortunately, I lost the citation and have not been able to find the report anymore, in spite of intensively searching for it a number of times.
The gist of the study report was that the cost of producing gasoline and moving it from the well-head to the gas tank at the pump, including all production costs and mark-ups at intermediate stages, excluding all royalties and tax revenues, was at that time between $0.23 and $0.26 a liter everywhere in the world. Taxes comprised the difference between that and the price at the pump.
Here is a snapshot of the sources of energy generation in Alberta on one of the coldest days in Alberta, last winter:
http://www.bruderheim-rea.ca/mages/Generation_Alberta_2011-03-01_11-20am.jpg
Source: http://lce.folc.ca/2011/03/01/wind-power-generation-on-a-cold-day-in-alberta/
“…although of the total Alberta generating capacity a full 5.8% is supposed to be derived from wind turbines, at 11:20 am only 0.022% or 2.2 hundredth of one percent were being generated from wind power.“
@WillR
“Wind power requires 100% backup by another reliable source — as does solar.”
Agreed as logical, however while you can’t store compressed air to blow at the windmill, you can easily store huge amounts of heat to run solar thermal. I have assumed that ‘storage’ is on all cases referring to storage of electricity in chemical or capacitative form. Suppose instead heat is stored and turns the generators 24/7? This is not far-fetched. One should look at the cheapest energy storage point in the total system and place the back-up there. Clearly wind is the worst candidate because it requires distributed on-site storage or perhaps a centralised pumped water storage (as found in Cape Town, for example).
Not mentioned by anyone, that I noticed anyway, is the idea of “peak demand availability”. This factors in the availability of the equipment (on-line availability), the occurrence of peak demand (time of day, season), and the likelihood of the equipment actually having a source of power (wind or sun, for example). Here in Idaho, peak demand occurs in mid or late summer, when there is usually little wind, so the peak demand availability of windmill generated power is 5% of nameplate capacity during the time when it could actually do some good. That eliminates windmills as a viable power source, yet subsidized windfarms are being forced on the power company and the costs forced on the consumer and taxpayer in the name of saving the planet (and lining some pockets). Fortunately, we still have some of the lowest power costs in the country due to lots of hydro.
Another topic: I noticed in the cost chart that nuclear is out of position. It was moved lower on the list than it should be. Nuclear is competitive with the latest fossil fuel technologies, has a great safety record, and emits no carcinogens during normal operations.
Wolfgang Flamme says:
December 3, 2011 at 7:34 am
“Here’s what it looked like in Germany:
http://i171.photobucket.com/albums/u304/wflamme/DE_2006-Stromexport_ueber_Windeinsp.png
”
Interesting; but that was when we still had all our nukes running…
The gentleman that indicates that a $50,000 investment will produce 400,000 kWh over 40 years, for a cost per kWh of $.125 per kWh. I would think you might add at least two items to the cost:
-the cost of the $50K outlay at 5%, would be about $2900 per year over 40 years. That is $116,000 total, or $.29 per kWh
-$.02 for maintenance
ferd berple,
Solar modules currently come with 25 year power train warranties that guarantee a minimum performance level. Here in Ontario we have some grid tied panels still in service from the late 70’s. The local conservation area uses them as a showcase of what’s possible. 40 years is not unreasonable. So my figures are subsidy free and dropping with every year longer they last.
The FIT program you talk about is driving the acceptance of solar and is intended to wean the industry off subsidies once the market matures. The slashing of solar subsidies are normal processes, not because they are non-cost effective or whatever, but because they both drive and respond to efficiencies found in the industry. Gotta love public-private partnerships. BTW, the FIT does not solve the problem of lack of solar energy at night. The grid tied nature of the system does that on its own.
Currently Ontario has something like 80MW of small solar projects receiving $0.802/kWh (not $0.50 as you pointed out). That’s roughly 80 million kWh/year costing $64.16 million/year to the rate payers. When you consider that rate payers consume 151TWh/year the cost to the tax payers is an insignificant $0.000000424901/kWh. If the larger projects accounted for a 1000 times greater impact it would still only add $0.000424901/kWh.
And FYI, for FIT projects, batteries are prohibited from being connected upstream of your solar meter. From a technical perspective it’s pretty hard to game this system, although I’m sure some will try.
MrC
@Crispin in Waterloo.
I await your economic analysis of the feasibility of Wind/Solar storage. Any study I have seen simply shows that it is far more expensive than conventional energy.
And to show my heart is in the right place I will give you a flying start for one type of renewable storage…
http://www.northlandpower.ca/WhatWeDo/PrerevenueProjects/Project.aspx?projectID=195#m=2
Hint: It does not appear to be economic — I did the calculations for another forum…
As for heat storage you might want to examine the efficiency calculations.
I remain open to the possibilities that will be shown by your analysis… 😉
SoloPower is getting about $300 million in federal, state and local subsidies to open a new manufacturing plant in Portland Oregon. The local press has been cheerleading the news as a big jobs creator.
But the press wasn’t so kind in San Jose having been jilted in favor of Portland.
I pulled out the best quotes I call 10 red flags=fatal flaw.
My favorite is #5. It’s the bulls eye- The founder accusing the firm’s major investors and board members of “unjust enrichment”. Isn’t that the whole point of these schemes? Never mind viability. Line your pockets while you can.
Someone in some official capacity should be screaming bloody murder. Or at least whispering?
http://www.baycitizen.org/energy/story/solyndra-2nd-solar-energy-scrutinized/1/
After Solyndra, a 2nd Solar Energy Firm Is Scrutinized
San Jose-based SoloPower uses the same risky technology and also received a multimillion-dollar federal loan guarantee
By Aaron Glantz on October 15, 2011 – 12:03 p.m. PDT
1. Three weeks before Solyndra declared bankruptcy, the United States Department of Energy issued a $197 million loan guarantee to another Bay Area solar company that uses the same innovative, but risky, technology.
2. In its six-year existence, SoloPower has experienced internal discord — it paid a $20 million buyout to its founders — and has yet to turn a profit.
3.analysts say it is unclear whether SoloPower’s costs are lower than Solyndra’s. “They have not yet revealed anything on their costs of production,”
4. SoloPower has struggled to increase production to commercially viable levels.
5. Founder Talieh in a lawsuit, accused the firm’s major investors and board members of “breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment.”
6. But Talieh and Basol were bought out for $20 million, and the lawsuit was settled.
7. At the Energy Department in Washington, Damien LaVera, a spokesman, said he had not been concerned by the developments.
8. “This application was approved after extensive review by the career professionals at the department
9. SoloPower is one of four privately held CIGS solar manufacturers based in San Jose. SoloPower and two others have admitted they had never turned a profit. A fourth company refused to say
10. Of the four, SoloPower is the only firm to be granted an Energy Department loan guarantee
Doug says:
December 3, 2011 at 7:53 am
No doubt, some people will consider the taxes you pay on oil revenues to be a subsidy. Well, if those are subsidies, then everyone’s job is being subsidized as well, and everything that the governments taxes could be considered to be subsidized.
Aside from that, the German Government actually provided tax incentives for those who installed solar panels on their homes or properties. The return on investment was quite good on that, and the scheme took off, mainly because excess power could be fed back into the grid, and compensation derived from that.
However, not all of the government bureaucrats are stupid. Some of them soon figured out that the scheme was costing the government a lot of money of which it had increasingly no enough. Therefore the government soon began to tax the power delivered into the grid from any PV installations.
Of course, that did not quite cover the costs of installing PV panels and other alternative energy schemes. No problem, the electricity rates were jacked up to more than $0.30 kWh to cover the shortfall.
Perhaps some of our German friends can elaborate on where things stand now. Are the players in the solar craze sill as eager as they once were in both teams to waste their money on a losing proposition?
Bruce Stewart says:
December 3, 2011 at 8:36 am
“Noting that the replacements will need to come from different energy subsectors, and that corporate resistance will continue, society might decide that lack of resilience is a major externality”
Well, your “corporate resistance” goes both ways; as much as Big Coal doesn’t want to be dismantled, just as much do the wind power people lobby for more subsidies for their sector and fight other energy producers (they finance anti nuclear leaflets, for instance). In Germany, the PV and wind power companies have built up enormous lobbying organisations and their people constantly travel to Brussels to push their agenda on the rest of Europe.
As for the “lack of resilience”, this is the true driving factor behind German governments’ push for renewables. Both types of governments use the CAGW “scientists” only as useful idiots. The real objective is to build up a more diversified energy base to reduce dependency on Russia who deliver most of our natural gas.
These plays will be disrupted by more shale gas discoveries, though…
I have used EIA reports off an on for years, these engineers do good work. It is usually so well documented that if you need to make your own adjustments they too will be reliable. Almost all energy sources have their place and utility in the grand scheme of things. It all depends on local conditions and circumstances. Some like solar are very much restricted and some like wind are simply a make work project for the repair people. It seems to me that to do anything other then gas, coal, atomic, hydro are based on non economic criteria.
Downdraft says:
December 3, 2011 at 9:20 am
….Another topic: I noticed in the cost chart that nuclear is out of position. It was moved lower on the list than it should be. Nuclear is competitive with the latest fossil fuel technologies, has a great safety record, and emits no carcinogens during normal operations.
Something else needs to be put into the context, that is, for example, the cost of mining in terms of human lives lost. World-wide, about 100,000 men lost their lives mining coal during the last century. I am not aware of any lives lost in the mining of uranium.
Your foresight could be worth a fortune! There’s an ETF (Electronically Traded Fund) that tracks the price of natural gal “futures”; I think its ticker symbol is UNG. Leverage up, catch the wave, and then you can lean back and light up that big cigar!
One thing Governments and Green Companies don’t want to discuss is the “Human Costs” of Solar and Wind………………….the same old BS rhetoric bubbles to the surface like “Wind and Solar are clean and are replacing the dirty coal and fossil fueled energy systems in the world”. WRONG!!!………….for every single Kw of energy produced by the clean green wind and solar industry one Kw of gas generation is required when the wind doesn’t blow and the sun doesn’t shine!………….the particulates from gas fired generation are smaller than the ones emitted by coal and cannot be “scrubbed” with the latest technology. Asthma sufferers will notice this before anyone else. Clean Coal is a reality but not “politically correct” anymore.
People’s health has been attacked by Wind Sound, and properties have been sadly devalued so that people living within the shadows of these Industrial complexes cannot sell and get the hell out!
Of course the last thing “Greenies” give a damn about are Humans……..they also think there are too many of “us” on “Their” Mother Earth!
I must confess that I cannot comment on the economics of PV energy generation, however my own solar powered hot water system was a really good investment. It is not subsidised by anyone else, I don’t export power, but it really made a major difference to my energy bills. Sometimes is easy to overlook how much energy we lose by heating how water and pouring it down the drain. I thought it would take 5 years to pay for itself, it took in fact more like 4. Everything now is clear profit. Renewable energy will never be able to compete with traditional fossil fuels on an economic basis, but it is not that simple. A previous poster commented on the mortality rates for coal mining in the last century. In addition to that were the many others who did not die, but who were severely disabled. The cost of care for such is an issue is rarely included in our calculations. Additional costs of the maintenance of families where the main earner is disabled is also discounted. It may be that such factors increase the economic cost of traditional fuels more than we care to admit.
mike g says:
December 3, 2011 at 6:33 am
“ . . . push hydrocarbons and god knows what other chemicals into the water table . . .”
Please educate yourself about the fracking issues!
The “water table” is not involved.
Hydrocarbons are the desired output, not input.
Water and sand are the big inputs;
. . . and gaur gum.
You don’t need god to explain this.
Willis,
It will be three years from the time that the large RE (pv, concentrating solar, etc) contracts that PG&E, SCE, or San Diego have signed before the details of the contract will be know to the public- which will then allow the public to see what the true costs of purchasing the electrons (generation) will be. We can get a glimpse of the generation costs (which do not include transmission or distribution costs) for contracts that were signed off in 2009 from the following California Public Utilities Commission “ENERGY DIVISION RESOLUTION E-429 dated December 17, 2009” located here-http://docs.cpuc.ca.gov/PUBLISHED/FINAL_RESOLUTION/111386.htm
A key item for say NRG (the folks that have been buying up a lot of the large RE projects in CA) is the Time of Use factor that allow the generator to obtain premium prices for their power at peak times (which is when PV ‘s output hits it maximum capacity factor in both a day cycle and within the year).
“The rates are set and adjusted by Time of Use (TOU) factors as authorized by the Commission. The MPR is the predicted annual average cost of production for a combined-cycle natural gas fired baseload proxy plant. Energy produced during utility peak hours should command a higher price reflecting the higher cost of generation during those hours. Conversely, energy produced during off-peak hours is less valuable to the utility and the tariff should vary accordingly. Using Time of Delivery (TOD) adjustment factors will result in annual payments under this program that better match with the MPR.”
So for PG&E they will be paying NRG a price 2.20490 * the Market Price Referents for the output from the plant in the summer peak months. A PV facility starting up earlier this year with a 25 year contract with PG&E the Market Price Referent = 0.10442. By my math this means NRG will be getting 23.03 cents for each kwh they send to the grid at Super Peak times in the summer. I feel a bit sorry for the poor rate payer advocates at the CPUC as they are going to have to figure out how to allocate these costs to PG&E’s customers.