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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Willis,
The thing that bugs me the most is that the power company is selling me the same electronsl over,and over again. 3600 times a minute these little charged wave/particles see-saw through the wires of my house.
At least that used to be the case. I have a vague memory that the frequency of my electricity would no longer be closely controlled allowing it wander somewhat about the 60.00 Hz mark.
Two results: Now I get new electrons over time AND many of my appliance clocks are no longer keeping good time.
Cheers
First comment, anyone who uses solar east of the Mississippi and North of the Mason/Dixon is never going to see a payoff on that investment.
I know of nowhere that solar is a “good investment” where there is no subsidy for solar.
I will disagree with this. My company sells mobile solar and solar/wind power systems that are economically attractive today in remote locations and in certain applications in telecommunications, military power, and other areas where the cost of transportation for propane, diesel, or other fossil fuels is prohibitive.
The U.S. military is paying $29 per kw/Hr (yes, twenty nine dollars per kilowatt hour) in Afghanistan.
Willis, everyone: thanks for clearing this up. I was assuming that the Bloomberg article made at least some sense, e.g. that the tax deductions in question were unique to this industry.
Matthew W is right. And subsidies only reduce taxes. In the case of oil companies, the taxes paid are substantial. Subsidies only reduce their tax liability by a relatively small amount. And “subsidies” like the oil depletion allowance are no different in principle than depreciation on a commercial building.
Sal Minella says:
December 3, 2011 at 6:38 am
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.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Yes – that is the kind of cost I found when researching solar years ago, and even though solar prices have fallen, add batteries for emergency power or off grid applications and costs soar.
Add snow, and dirt and clouds and capacity factors and you better not want to run much more than your fridge and deepfreeze. So I have a propane powered 16 kw backup generator as I live in a remote area with wells and a water to water heat pump to run. And I have to clean snow off my solar panels for my fencers and pond aerators regularly. Today it is snowing and overcast so they are all running on battery back up – till the batteries go flat.
Get a dose of reality. The only way Solar panels seem to be “economic” is where there are big federal and local subsidies. Look at the following payback calculation from a PV company for North Carolina. Without subsidies the payback is close to 30 years (at 20 cents a kW) . About the same period as the replacement period for the equipment. Add batteries and a more competitive power rate and PV’s are totally out of the picture.
——————————————————–
Promotion from PV supplier follows:
Details:
2KW (or 2 Kilowatt) is a small starter system that would provide electricity with a value of approximately $45 per month.
This sized system would cost approximately $14,000 before taking advantage of tax credits.
The federal tax credits are 30% or approximately $4,200.
The NC State tax credits are 35% or approximately $4,900.
The bottom line cost, after credits comes to approximately $5,000.
Note: The price of a 2KW system is approximately $7 per watt. As the size of the system increases, the price per watt would decrease. For example, a 5KW system would cost approximately $6 per watt.
The typical 2 KW Photovoltaic (PV) system will include:
10 collector panels of 16 square feet each or 160 square feet of collector panels.
Inverter, wiring, tie-ins, etc., for a complete turn-key installation.
All electric work performed by a NC licensed electrician.
Value / Payback:
Most NC customers sell their solar electricity back to the grid, and get a total of about 20 cents per KWH (Kilowatt Hour).
This represents 5 cents for the electricity, and 15 cents for the “Renewable Energy Credits”.
A 2KW system produces (on average) about 7.5 KWH per day or 225 KWH per month. At 20 cents per KWH this comes to $45 per month, yielding a simple payback of 9.25 years.
NOTE: In North Carolina, payments for “Renewable Energy Credits” come from NC Green Power, and payment rates can vary. Check with NC Greenpower before starting a project to confirm current rates.
I’ve done my own calculations for the cost of solar simply using the published cost a project, then amortizing that number over the expected lifetime of 25 yrs to get a monthly payment. Then I take the kW or MW rating of the solar project and multiply by hours in a month time 15%-20% output. I’ve never calculated a number less than 38 cents per kWhr. And that assumes the average lifespan of a unit is 25 yrs, when in actuality the average lifespan is likely much less.
Very interesting.
Your post neglected the fact that the levelized cost calculation for GHG producing generators such as coal-fired without CCS includes a capital cost penalty, which has a similar impact to a $15/tonne carbon tax, to provide equivalency to low GHG producing technologies, without this coal-fired power would be cheaper still and the contrast with wind and solar would be even greater.
Following from the DOE document:
“a 3-percentage point increase in the cost of capital is added when evaluating investments in greenhouse gas (GHG) intensive technologies like coal-fired power and coal-to-liquids (CTL) plants without carbon control and sequestration (CCS). While the 3-percentage point adjustment is somewhat arbitrary, in levelized cost terms its impact is similar to that of a $15 per metric ton of carbon dioxide (CO2) emissions fee when investing in a new coal plant without CCS,”
Another one bites the dust:
http://www.bloomberg.com/news/2011-12-02/range-fuels-cellulosic-ethanol-plant-fails-as-u-s-pulls-plug.html
“Range Fuels Inc., a cellulosic ethanol company backed by as much as $156 million in U.S. loans and grants from President George W. Bush’s administration, is being forced by the government to liquidate its only factory after failing to produce the fuel.”
A 30 year life expectancy drastically over estimates the amortized cost of Gas, Coal, Nuclear, and Hydro. If properly maintained, Hydro lasts until something breaks it (like a major flood event destroying the dam). Gas, Coal and Nuclear have many facilities that have been in use for 60+ years already, and despite reference I have seen that large boilers need something close to a rebuild after 30 years hard use, the rest of the facility is already built and the rebuild often increases the capacity of the plant.
Wind is almost uselessly intermittent without some type of high capacity storage. PV while more predictable, has significant times when it produces nothing.
The two most common forms of bio mass are wood chips and methane. American coal plants are designed for crusher run coal, with little to no modification they can burn wood chips only issues are lower burn temp and more ash per KWH. I have seen methane captured by some municipal sewage systems and some power plants get theirs from landfill gas.
Willis writes “So panels are cheap, but not likely to get a lot cheaper in the near future, the market is still correcting. Finally, as I said above, panel costs are a small part of the whole equation.”
What you are seeing there is the base product (ie the cells themselves) have dropped in price but not the whole framing/inverting thing. IMO these too will drop substantially over time once we settle on standardised ways of doing things and there are plenty of installers around to meet demand.
No one renewable will solve all the problems and so we shouldn’t look to use solar for all the answers. IMO nuclear energy will also form a significant part of the solution in the medium term.
The big worry about letting the market purely dictate what energy sources we use is that if/when hubbert kicks in and production falls away with non-renewable like oil, then we’re hit with the double whammy of spending additional resources to convert to another technology during a period where those resources are becoming increasiningly difficult to find.
That, IMO, is the recipe for producing the worst in man.
Willis, why let Coldlynx slide this by,
“That give in Sunny states a annual output of up to 2 kWh electricity.”
An annual output of up to 2 kWh or US $0.30 at high rates, is bad payoff. If he meant 2kW power or2kW per hour averaged over the year, ok but for economics of location for rate of return on investment.
Some input from Germany:
This is the Official Wind Power Monitoring Program website, formerly run by ISET Kassel, now part of Fraunhofer Research:
http://windmonitor.iwes.fraunhofer.de/windwebdad/www_reisi_page_new.show_page?page_nr=0&lang=en&owa=&owa_own_header=0
As for costs:
– spinning reserve backup costs are estimated to be around 2.5ct€/kWh_windpower – however no official estimate is available
– neccessary grid enforcements are TSO’s responsibility (big issue right now since grid congestions become increasingly frequent)
– hardship clauses in case of grid congestions (TSO’s emergency management, wind power shedding)
For the city of Hamburg, Vattenfall recently announced a municipal cooperation project where they intend to use wind power generation surplus for district heating assistance…
Most people in this “Energy sources” debate seem to be missing a simple point.
If the householder spends money on Renewable source? That’s money, now, not wondering the economic system. It’s a diversion of resources to renewables.
Try this for a thought experiment?…
For those that want to install renewables as their main power source? Send extra taxes to the government and have them organise it for you, see how that turns out. Because that is what is actually happening. It’s not ALL about which techinology is or isn’t more viable than the other. It’s also about efficient use of resources.
Most of the western world power generation has now moved to the private sector. Why? because the private sector uses resources more efficiently.
The proposal for renewables requires State involvment. Why?. The private sector wont touch it on any meaningful scale because it’s in-efficient.
OK, so you want renewables? No Problem. Write the government a letter stating you’ll pay extra taxes, or alternativley get them to cut the funding to your Schools, Hospitals, Roads and Infrastructure and see how all that works out for you.
Double foot-in-mouth for you David. Your criticism of a minor confusion of “deduction” and “credit” adds nothing to the topic at hand. Come back when you have something to contribute.
TimTheToolMan doesn’t seem to have much faith in the free market. As fossil fuel prices rise, alternate energy sources naturally begin to take over as the price becomes competitive. There is no need for government subsidies, in fact such subsidies are harmful to society. Productive funds are diverted to less efficient energy sources, raising energy prices and leaving less money for everything else.
If there were no subsidies for wind and solar power, they would account for almost no energy production. By giving heavy subsidies to the Solyndras of the economy, while absolutely refusing to allow the extraction of the copious new fossil fuel reserves available off shore, the government is fulfilling President-elect Obama’s promise that “electricity costs will necessarily skyrocket.” How is this situation good for the country?
Where does the 1c for Hydro fuel cost come from? I didn’t realize rain and snow cost anything.
Thank you. I too found it a trollish distraction.
The self-styled architects of our future energy scold us on the topic of “sustainability”, yet not a single one of their economic plans is sustainable. The most important component is cost and they act as if their good intentions can cause expensive power supplies to be superior to those that are far less expensive.
Well, there are only so many jelly beans in the jar. The family that struggles to pay their $200 electric bill will not be able to pay one when it rises to $500, no matter how clean, sustainable or in harmony with Gaia new power sources may be.
But what is really going on when people who advocated solar power for years suddenly oppose a solar power plant because of how it might disturb a newly discovered endangered species? That they really didn’t yearn for solar power after all. Demands for solar power were really a means to an end- to end our prosperity and national power. And I am afraid this is really the end goal of too many advocates of green power.
Just a couple of notes –
The US EIA uses average costs. Not many people live in a place called ‘average’.
The cost of coal varies by 400% to 500% in the US(The further you are from Gillette,Wyoming the pricier it gets)
Natural gas varies by 50% – the further you are from the Henry Hub the pricier it gets.
@ur momisugly buckwheat.
This is about the associated financial derivatives and has nothing to do with energy. They do not even have to sell electricity. The following is applicable to solar and was brought to my attention awhile back. You might want to take a moment to read the SEC filing.
This is from a company known as First Wind. They have numerous shell and shelf companies including UPC renewables etc. This is from SEC filings to present. (they have not yet gone public).
“Under the terms of our existing financial swaps, we are not obligated to physically deliver or purchase electricity.”( Selling to a foreign country is not mentioned here, so I presume it is mentioned in another SEC Report .)
Amendment 7 to 2010 SEC report
Table of Contents
Risk Factors P.28
Most of the information I have gotten is under Risk Factors of First Wind’s SEC Reports 2010 until the present.
See cohocton wind watch for these filings.
http://www.cohoctonwindwatch.blogspot.com/
At a BBQ last week I found out that a couple had invested $38,000 in solar panels and energy.
They took out a loan! Then said so far they had got back $160.00 for one house that they spent
$12,000 putting in solar. And 1200 dollars for the larger one, that they spent $26,000 dollars.
They are alarmists of course. Now I am wondering, doing our sums, how much will the interest be on those loans? In comparison to what they get back in electricity credits? Solar panels are only guaranteed for five years. And of course they may have taken out a loan for only a few years, but the rest of us, are subsidizing their electricity. Not fair.
http://citizenpoweralliance.wordpress.com/industrial-wind-and-the-wall-street-cap-and-trade-fraud/
To illustrate this point the pending First Wind Holdings Inc. SEC S-1 and S-1A application for an IPO readily admits that producing electricity it is not necessary to be profitable.
Back in my home town of Aberfeldy, in bonny Scotland, they are cutting down all of the trees I planted in the hills to the south of the town 30 years ago to builb a bloody windfarm?!?!?!?!?!
Must be money in it for someone.
,,,builb…? Hey – no – it’s OK. It works. I’ve made a new verb: “to builb a windfarm”.
Can anyone tell me, that if you have credits from either solar or wind turbines, is it taxable.
Jimmy Haigh at 3.54 pm. Google Newburgh in Fife, Scotland. Of course there are people in it for the money, especially if they own the land the turbines are being built. It will force up the electricity costs for those who don’t own the turbines, as found out in California. While the others are earning subsidies and also credits for themselves. In someways, we are privatising energy
sources and those involved are getting no returns worth the expenditure and input.