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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Manfred says:
December 3, 2011 at 2:58 am
Sure they will lower all cost components … including all cost components for non-renewable energy resources. So it will not benefit solar.
w.
Here’s an idea:
The standard royalty paid to the government for production of fossil fuels from public land is 12.5% of gross. The system is fair, in that those resources belong to “we the people” and we deserve our cut.
Likewise, the sun and the wind belong to us all. Let’s collect a 12.5% royalty from tapping those sources as well. That would level the playing field and ensure we use the most cost effective source of energy.
Rob L says:
December 3, 2011 at 3:34 am
Distribution costs in California are not seven to fifteen cents. I pay twelve cents per kWh all up.
w.
Several questions comes to mind. If I make any improvements to my house (new AC, etc), the value goes up and so do the real estate taxes, which are considerable in NJ where I live.
If I install solar panels on my roof, do my real estate taxes go up? Shouldn’t that be part of the annual cost?
If not, why not? Are solar panels they exempt? Will they be exempt down the road?
Possibly if I sell the home at a higher price due to solar panels, will the new owner have to pay an increased tax bill, many towns base taxes on purchase price?
One a crazy subsidy scheme is created by the folks in goverment, where does it stop?
Espen says:
December 3, 2011 at 3:51 am
In the US there’s a tax advantage if you drill for oil in the US. Other than that I don’t know of much in the way of subsidies for fossil fuels. What subsidies are you speaking of?
w.
JC says:
December 3, 2011 at 6:08 am
Couldn’t agree more. The idea that inexpensive energy is bad for the world is perhaps the most anti-human of all the “green” ideas.
w.
Feel free to learn from your Northern Neighbors… Canada — if you have heard of it…
http://www.financialpost.com/news/Solar+backers+both+burned/5806751/story.html
There are many lessons to be learned here: 1. Just because something feels good (being green) doesn’t mean you will make any money from it. 2. When there is euphoria on any sector, use extreme caution. Most investors, given the chance of losing 93% for the chance to make 100%, would likely do nothing instead. That’s a great policy when faced with a euphoric sector. 3. Watch out for financings, as usual. Investment bankers strike when the iron is hot and they can sell deals. This in and of itself implies solar stocks were peaking when all the financings and IPOs came out. Basically, it’s the age-old rule. When everyone else is buying, maybe you shouldn’t. 4. Watch out for industries that rely on government support. Far better to invest in a sector that is self-funding without subsidies. The government has enough hidden surprises for you on the personal tax level, so don’t double-up on your government risk by buying companies in need of government help to meet their business plans.
Pay attention to lesson 4.
Cheers!
mike g says:
December 3, 2011 at 6:33 am
Not true. If the price of gas goes up like that people won’t use it.
The EPA thinks that sunshine and pure air need regulation. I doubt greatly that the loons are enough to stop fracking. And no, it doesn’t “push hydrocarbons … into the water table”, that’s your fantasy. Do your homework, crying “Wolf!” doesn’t work around here.
Yeah, people care so much about carbon footprints … in addition, that research has already been superseded.
w.
Walter H. Schneider says:
December 3, 2011 at 9:34 am
“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?”
Yes. The left parties call the cross subsidy, which increases electricity prices by about 17%, unjust, though, and want a progressive income tax instead to finance the renewable madness. The FDP (classical liberals) is making noises that call for a limit on the new capacity of installations in a year. Guaranteed 20 year tariff for new installations is cut by about 20% each year, following the cost curve of PV.
Still all gung ho for Solar in cloudy Germany.
thebiggreenlie,
WRONG!!
For every kWh of energy demand, we can supply that with either a renewable source or fossil/nuclear. While base load nuclear power generation is more of a “light it and go” nature, fossil fuel generation can be modulated. Less use of fossils means less finite fuel consumed, less wear and tear on the equipment and less pollution like SO2, mercury, arsenic, cadmium, lead, selenium and uranium being emitted. (I do not consider CO2 to be a pollutant).
Fossil fuels don’t “back up” renewables. They’d be needed anyway. We just need less of them as renewables are doing a bit of the work.
MrC
coldlynx
Would you find the same joy by growing all of your own food, and with growing/producing your own textiles? Perhaps you would enjoy building your own wagon from wood to be pulled by your own horses and grinding your own lenses for glasses. Heck, let’s get totally off the grid and not by pv panels, just burn what biomass you can grow.
Getting off the grid sounds great, but improved efficiency – lower cost (your labor and resources) – comes from larger scales.
Why do you dislike power companies? Rural electrification is still recent enough that some remember the time before – it was not easy. The power provided to all through electricity by these companies enables our civilization to continue to grow at the fantastic rates we’ve seen. I do NOT want to go back to having to survive on what I alone can produce.
Incidentally, here’s a point VMartin made here on Nov. 20:
Espen says:
December 3, 2011 at 6:35 am
Thanks, espen. Your citation says in part:
That’s the usual bull that I read. How is it a subsidy that, if a company pays taxes or royalties outside the US, it can deduct them on the US taxes??? That’s just normal tax law, it applies to me as an individual. When I lived in the Solomons, I paid Solomon taxes and deducted them from my US taxes. That is a breakeven deal, I was not “subsidized” in any sense.
Further down in the article someone says:
What he said.
Finally, even according to the citation’s ludicrous figures, the so-called “subsidies” to fossil fuel companies amount to $72.5 billion on the 93% of the US energy the fossil fuel companies produce, while subsidies to renewables (which produce ~ 5% of total US energy) amounted to $29 billion. Even their bogus figures say that per unit of energy, renewables are getting about eight times the subsidy as fossil fuels … and real figures would make the disparity even worse.
w.
If you want the concise condensed version refer to my comment on the most recent DOE comparative electrical generation cost report. This is one my staple documents.
http://wattsupwiththat.com/2011/10/06/wind-turbine-fail-school-left-holding-the-bag-for-53000/#comment-761653
One might also take a look at biomass which is just another way of harvesting solar energy and it’s comparable in cost to advanced coal, wind, and nuclear.
Here’s the table and this picture is worth a thousand words, with far more data, all in one nice spreadsheet format and quite unlike the typically colorful but comparatively empty Figure 1 chosen by Willis.
http://upload.wikimedia.org/wikipedia/commons/a/ad/Levelized_energy_cost_chart_1%2C_2011_DOE_report.gif
you says:
December 3, 2011 at 6:25 am
Assuming that was meant for me:
1. My name is Willis.
2. Yes, wind works, it works very well. Wing generated electricity also work, just not for long and at a huge cost and not very well.
3. The numbers I gave for wind power are backed by citations. What you have just put forward is “pure speculation”.
4. “Small, easy to maintain generators”? You ever done any generator maintenance? Try doing it hanging off the top of a hundred foot tower and tell me how easy it is …
w.
Hi Willis,
As soon as I read the very low alleged costs for wind power I knew they were wrong.
The stated capacity factor of 34% is far too high – low 20’s is routine.
But the Substitution Factor, as indicated by E.On Nets Wind Report 2005 (emailed to you) is the killer. Wind power typically requires more than 90% conventional backup.
Wind power, which varies as the cube (^3) of wind speed, often provides power when it is absolutely worthless, and furthermore can destabilize the grid due to its wild short-term fluctuations.
Finally, if wind power was any good, it would not need huge, life-of-project subsidies.
I expect that we will ultimately conclude that wind power is utterly worthless, and perhaps even generates less valuable, peak-load power than it consumes, on a life-of-project basis.
Regards, Allan
_________________________________________________________________________
Willis Eschenbach says:
December 3, 2011 at 1:40 am
Walter H. Schneider says:
December 3, 2011 at 1:30 am
… 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.
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.
Here’s a good widget for energy consumption and production:
http://oilprice.com/free-widgets.php
I cannot believe that on-land wind is as cheap to build and run as indicated in the chart. Why are there 14,000 defunct turbines in the US? Maintenance is greater than is indicated, broken parts cannot be recycled and are long term pollution.
What is not indicated with wind, on or offshore, is that it functions terribly, only when the wind blows, and even has to be turned off when the wind is too great, at about the speed where the turbines become efficient but the gears cannot take it. Also, wind makes power at inconvenient times and has a number of related health issues to humans and animals.
Turbines in the UK have been paid to turn off when making energy when it is not needed; they make money for doing nothing! There are wind farms in California that have to turn off for 5 months of the year to allow bird migrations.
There is a cost to having all of this investment, either not making wind during the correct times of day, times of year, or not at all, as with the defunct mills. This all raises the cost of on-land wind to the same stupid level as offshore.
Willis Eschenbach says:
December 3, 2011 at 11:14 am
That’s the usual bull that I read. How is it a subsidy that, if a company pays taxes or royalties outside the US, it can deduct them on the US taxes??? That’s just normal tax law, it applies to me as an individual. When I lived in the Solomons, I paid Solomon taxes and deducted them from my US taxes. That is a breakeven deal, I was not “subsidized” in any sense.
=========================================================
Stuck your foot in your mouth again, Willis. Do you know the difference between a tax credit and a tax deduction? Evidently not. Or you didn’t read carefully enough.
Good grief. This is simple tax stuff but like just about everything else it’s way beyond your skill set.
Willis says “Try doing it hanging off the top of a hundred foot tower and tell me how easy it is …”
In my neck of the wind swept West — towers are a bit taller, the climb harder, and the sway more noticable.
http://en.wikipedia.org/wiki/Wild_Horse_Wind_Farm
“. . . The towers are 221 feet (67 m) tall, and each rotor is 129 feet (39 m) long, . . .”
I would only add that working on any large structure entails its own work-related issues. The issue is the number of facilities and their ability to be profitable and pay for maintenance and repair. Regarding home systems (aka off grid), many home owners don’t know how to turn the water off entering their homes. Good luck with power systems! Then you have to know how to turn the outgoing power off also, or your system becomes a danger to utility workers during a grid outage/repair event.
>>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.
I fly over these wind carpets daily, and from my experience, about 15% are out of action at any one time. That is not only a high maintenance cost, but a significant loss of production too….
.
Very interesting article Willis. It sparked some good commentary. One thing though, if you consider something occurring in the early 1950’s as being the advent, then I guess Hydraulic Fracturing qualifies. Somehow the idea that fracing is a new phenomena seems to have ingratiated itself into the critique. I know it is a lot scarier if it is new and untried, but it is old and commonplace. I have heard it said that there have been over a million frac jobs in Oklahoma alone since its inception. I think what you mean is shale gas which as an exploited phenomena is relatively recent. I will say that if your intention is to stop shale gas drilling than outlawing fracing would certainly bring it to a screeching halt. I can’t help but think that this is the motivation behind some of the scare stories.
Further to my post above, about 15% of wind turbines being out of action. Please note that these are NEW wind-farm installations, less than 5 years old – so it will be interesting to see the situation in 30 years time.
.
MrCannuckistan says:
December 3, 2011 at 7:09 am
The “emerging Ontario market” is supported by an enormous subsidy. You folks are paying 42¢ per kWh to the producers of solar power, Wikipedia sez you are discussing jacking this to 80.2¢ per kWh … and you want to boast about this? That’s the biggest subsidy on solar I’ve heard of.
Costs in their study are levelized over a 30 year period. You need to compare apples to apples. That jacks your numbers by a third. So already we’re up to 17¢ per kWh. In addition (as you point out) the inverters will likely need replacing. That puts us at maybe 18¢ per kWh.
To that we need to add a couple cents for operations and maintenance, there’s no free lunch. Call it 20¢ per kWh all up. That’s three times the cost gas at 7¢ per kWh … it only works because of the subsidies.
Same objections apply. It’s still twice the cost of conventional gas power.
Same problem. Why would a store want to cool itself with solar power that costs twice or three times what conventional power costs? (Transmission costs as a part of levelized solar costs are only about a half a cent.)
The problem is you want other people to pay for your hay habit.
Other ratepayers are forced to subsidize your power preference, a preference which doesn’t work without huge inputs of money. This raises the cost of power to everyone, particularly including the poor folks that cannot afford to install a fifty thousand dollar yuppie fantasy. It is a hugely regressive tax. It raises energy costs for everyone, and I think that is a pernicious plan which does not benefit anyone.
w.
Espen says:
December 3, 2011 at 8:05 am
Matthew, barryjo: I’m not going to insist that it makes sense to call it a subsidy. But in any case it’s an advantage given to a specific industry, isn’t it?
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It is not at all about “making sense”.
At the risk of being called pedantic, the tax code is not a subsidy.
That’s it. It’s very simple and very clear.