Guest essay by Eric Worrall [See update by Willis Eschenbach at the end]
h/t Dr. Willie Soon – great news, wind power is so cheap government subsidies and market favouritism are no longer required.
New wind and solar generation costs fall below existing coal plants
Estimates jeopardise Trump’s hopes of reviving mining industry in US
Ed Crooks in New York
NOVEMBER 9, 2018The cost of new wind and solar power generation has fallen below the cost of running existing coal-fired plants in many parts of the US, threatening to wreck President Donald Trump’s hopes of reviving the mining industry.
New estimates published on Thursday by Lazard, the investment bank, show that it can often be profitable for US generation companies to shut working coal plants and replace their output with wind and solar power.
The calculations suggest that closures of coal-fired plants are likely to continue, eroding US demand for coal and jeopardising Mr Trump’s ambition to “put our coal miners back to work”.
The falling cost of renewable energy is adding to the pressure from cheap gas and stagnant demand for electricity, which have cut US coal power output by more than 40 per cent since 2007.
Retirements of US coal-fired plants are expected to hit a record high this year, and companies including FirstEnergy and American Electric Power have in the past few months announced further closures. Many of the plants being shuttered are reaching the end of their working lives, but even some relatively new capacity is being shut because it is no longer economically viable.
…
Read more (paywalled): https://www.ft.com/content/af6915c8-e2eb-11e8-a6e5-792428919cee
Former Vice President Al Gore celebrated the predicted loss of coal jobs;
Electricity from new wind and solar power is now cheaper than from existing coal plants in many regions of the US. The economic benefits of clean energy are here and now. https://t.co/zHIZmv3qEl
— Al Gore (@algore) November 9, 2018
However the article linked by Al Gore (which in turn links to the FT article above) points out that estimates of renewable energy cost may not properly account for the cost of energy storage and additional grid infrastructure required to connect renewables.
… “Although in its formative stages, the energy storage industry appears to be at an inflection point, much like that experienced by the renewable energy industry around the time we created the LCOE study eight years ago,” said George Bilicic, vice chairman and global head of Lazard’s Power, Energy & Infrastructure Group.
Still, Lazard says that battery storage is not yet cost-competitive to the point where it can drive the “transformational scenarios envisioned by renewable energy advocates.” In that it refers to grid defection, pointing to the issue of battery life rather than capacity. But it may not be far away. …
Digging deeper, the Lazard analysis contains caveats, which suggest the future may not be entirely rosy for renewables;
- LCOS v4.0 has revealed significant cost declines across most use cases and technologies; however, Industry participants noted rising cost pressures for future deliveries of lithium-ion storage systems due to higher commodity pricing and tightening supply
- Sustained cost declines have exceeded expectations for lithium-ion technologies, while cost declines for flow batteries are less significant but still observable
- Future declines in the cost of lithium-ion technologies are expected to be mitigated by rising cobalt and lithium carbonate prices? as well as delayed battery availability due to high levels of factory utilization
- Consistent with prior versions of the LCOS, shorter duration applications (i.e., 4 hours or less) remain the most cost effective for the commercially prominent energy storage technologies analyzed
- The underlying costs and performance of commercially available energy storage technologies continue to make them most attractive for applications which improve the grid’s ability to respond to momentary or short duration fluctuations in electricity supply and demand (e.g., wholesale services such as frequency regulation and spinning reserves and use cases serving the C&I segment such as demand charge mitigation)
- Project economics analyzed in the Value Snapshots have revealed a modest improvement year-over-year for the selected use cases, primarily reflecting, among other things, improved costs rather than rising revenues
- As costs continue to come down, particularly for shorter duration lithium-ion applications, returns have incrementally improved year-over-year; however, in most geographies, project economics depend heavily on subsidized revenues or related incentives
- Among the currently identifiable revenue sources available to energy storage systems, ancillary service products (such as frequency regulation, spinning reserves, etc.), demand response and demand charge mitigation represent potentially attractive revenue opportunities in selected geographies
- Project economics analyzed for solar PV + storage systems are attractive for commercial use cases but remain challenged for residential and utility-scale projects
- Combining energy storage with solar PV can create value through shared infrastructure (e.g., inverters, interconnection), reducing the need to curtail production by delaying the dispatch of electricity onto the grid and/or by capturing the value of “clipped” solar production (e.g., solar PV output that is in excess of the system inverter)
- Energy storage is increasingly being sold with commercial and residential solar PV systems to provide for potentially increased customer reliability benefits and to enable customers to use solar PV production to avoid demand charges
- The Value Snapshot analysis suggests commercial use cases for solar PV plus storage provide moderately attractive returns in the markets assessed (e.g., California and Australia) while residential solar PV plus storage and utility-scale solar PV + storage remain modest for those projects analyzed
Read more: https://www.lazard.com/media/450774/lazards-levelized-cost-of-storage-version-40-vfinal.pdf
Even if we accept the cost analysis at face value, the “cost effective” four hours battery backup really isn’t useful in the middle of winter, when your solar panels are buried under snow and your wind turbines are frozen solid. Plants capable of providing power through dark, cold and snowy winter months will still be required.
If the USA embraces renewables the way countries like Australia and the UK have, consumers will be stuck with paying for two sets of energy infrastructure – the energy infrastructure which is used when the sun shines, and the 100% fossil fuel backup kept idling, ready to step in when the sun stops shining and the wind stops blowing.
JoNova points out the cost of paying for two parallel sets of infrastructure is having a real impact in Australia – businesses are being hit with up to 120% increase in electricity costs during the current round of wholesale electricity negotiations, thanks to Australia’s infatuation with expensive renewables.
[UPDATE by Willis Eschenbach] I trust that Eric won’t mind if I expand a bit on his excellent post. Lazard gives a graph on page 6 of his treatise on Levelized Cost of Energy, which I reproduce below (click to expand):
Note that the cost of either unsubsidized wind or unsubsidized solar is greater than that of coal or nuclear, at both the cheap and the expensive ends of the spectrum. And that is without considering the extra costs:
• capital cost of equivalent installed fossil-fuel or other dispatchable capacity, for times when the wind or sun are not available.
• running cost of equivalent installed fossil-fuel or other dispatchable capacity, which must be kept online at very inefficient operation for times when the wind or sun are not available.
• transmission lines from the areas (generally well away from the population centers) which are suitable and large enough for wind or solar.
Starting out more expensive and adding in all of those additional costs, I’m sorry, but that dog won’t hunt.
In California where I live, the green mafia has imposed “renewable mandates”. These have, of course, made only a trivial difference in CO2 emissions, but they have increased my power cost by 50% … and don’t think for one minute that energy-intensive industries haven’t notices. They’re fleeing the state like cockroaches when you turn on the light at midnight …
Best to all,
w.
I’ve added an update at the end of Eric’s most excellent post …
Regards,
w.
Thanks Willis 🙂
Lomborg’s latest 2018 update shows the S&Wind idiocy generates just 0.8% of TOTAL world energy and this may increase to just 3.6% by 2040. His data comes from the EU based IEA.
Will these dopes ever wake up? Here’s his article.
https://climatechangedispatch.com/where-do-we-get-most-of-our-energy-hint-not-renewables/
(fantasy wishful thinking) is real! and it’s happening now!
If we ignore most of the costs of renewables, renewables are cheap.
In Australia, Dr Finkel published a report for the government on the levelised costs of new generators in AUD$, multiply by 0.71 for US$:
Wind A$ 92/MWhr (no backup)
Large Solar A$91/MWhr (no backup)
Large solar with 12 hours backup A$172/MWhr (still not enough for winter)
Gas turbine A$83/MWhr
Coal A$76/MWhr
Yes they don’t have nuclear in OZ, but he should have included it in the comparison anyway.
“They’re fleeing the state like cockroaches when you turn on the light at midnight …”
Not exactly a metaphor I’d use for people and companies who are doing the sensible thing. More like people running the opposite direction from lemmings heading over a cliff.
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Which temperature series are correct?
Which do you believe, GISTEMP, HadCRUT4, UAH, or RSS?
This article compares these 4 “major” temperature series, to see how well they agree, or disagree, with each other.
You may be surprised at the results.
https://agree-to-disagree.com/comparing-temperature-series
The whole idea is insane, on the basis of Energy Return on Energy Invested solar and wind buffered for storage in the long run are roads to ruin:
http://homepages.uc.edu/~becktl/shaka-eroi.pdf
I think this comparison is unfair.
What is not mentioned here is the subtext to the illustration. It says:
“Represents the marginal cost of operating, fully depreciated coal and nuclear facilities, inclusive of decommissioning costs for nuclear facilities”
The key words are fully depreciated coal and nuclear facilities
They are comparing the alternatives of continuing to use existing fully depreciated coal and nuclear plants with the operating cost and capital cost of new renewables.
This comparison is ok as long as you know the purpose. What it illustrates is whether it makes sense to replace good existing conventional plants with renewables.
However, the existing plants have a finite lifetime. When they need to be replaced you must take the capital cost of building the coal or nuclear plants into consideration.
/Jan
If renwables were free they still wouldn’t be good value being part time power.
Grids need reliable and assured source of supply. Do these analysts actually understand how a power grid system works?
Sheldon which satellite data-set most closely compares to the balloon data?
Here’s the latest thread on Jo Nova, complaining that the rising cost of electricity is hurting small business there:
http://joannenova.com.au/2018/11/biggest-crisis-in-a-lifetime-worse-than-gfc-hits-australian-business-electricity-costs/
All those wild fires must have blown some dope smoke into Al Gore’s
property .
Well at least no one is going to freeze to death in California
unlike Europe where fuel poverty is rampant .
As a result of the con game global warming electric rates are at least
double what they should be .
Another inconvenient truth .
The cost of renewables may be less by some calculations.
The market value of this energy is negative, as discovered by Germany and Ontario Canada.
The utility has to be forced to buy it and then must pay to get rid of it. It is most often available when it is not needed and unavailable at peak demand.
Back in the mid 1980’s even the UK government understood that a small mountain of mined coal at the power station was a very efficient energy storage mechanism, helping to see off a miner’s strike lasting many months.
In those days the communists seeking to prevent normal generation of electricity to bring about their chosen societal changes were represented by coal mining union leaders, not environmentards. It’s amazing how much can be unlearned in just a few years.
Its Levelized Costs again…
Here is how you calculate them.
Write down by year all the cash flows going out from the installation, over the whole of its forecast life. In the early years these will be capital, in the later years maintenance.
Take the NPV of these cash flows, using whatever discount rate is applicable to your organization. It should reflect the real cost of money for your organization.
Now take the total amount of electricity the installation will generate through its useful life. To do this you’ll have to estimate average capacity factor.
We now have a total expense figure adjusted for the time value of money. We also have a total quantity of electricity. So to get the levelized costs, we just divide the quantity of electricity produced into the discounted cost number. We then end up with $ per MW.
As soon as this is explained, it becomes obvious why its absurd. If you do the sums for a coal plant and a wind farm, you may well find the wind farm has a lower cost per MW. But if you are a utility company, does this mean it costs less to install and run?
No, because you have left out whatever it takes to make the two systems comparable in performance. To do these kinds of cost comparisons correctly, you have to first define performance and then make sure that cash out covers all of the required costs to deliver it.
In the case of wind you will have to include the costs of storage and backup. There is a term for this in the case of storage, its ‘levelized cost of storage’, but you have to include backup plant as well. You will also have to include all the costs of deployment, transmission lines and so on.
When you do this, it turns out that no forseeable reductions in the capital cost of installing the wind turbines, or even the (falling) costs of battery storage, will make the NPV of wind, correctly calculated, cheaper or even comparable to that of conventional.
The underlying assumption that the use of the levelized cost parameter makes is that it does not matter to its value when electricity is produced. Deliver it with any sort of fluctuations you want, it is equally valuable. So suppose the wind plant delivers as a percent of rated capacity, by day, something like this:
100%
50%
7%
25%
75%….. and so on, throughout the 30 year life.
The assumption is that this stream of generation is worth the same as output from a conventional plant which generates its output at a constant rate except for scheduled outages. That is what is implied by just taking the totals generated and dividing. This is why you need the backup and storage cash flows to be included. You have to compare like with like before you can conclude that one form of generation is cheaper than the other.
All of this is standard financial stuff, used by the planning and finance departments of all Fortune 500 companies, taught in all business schools all over the Western world. Everyone who is involved with any sort of investment appraisal knows it. Everyone who has ever had to put together a business case has had to do it like this.
If you insist on not taking storage and backup into the cash flows, then there is a legitimate way to calculate the returns and compare them. This would be to do the other part of the case, calculate revenues from sales. If you did this, you’d find out how much the irregular deliveries would sell for when delivered. This will give you yearly revenue estimates for the life of the project. Subtract costs by year from the revenues by year, discount the result, and you know forecast profitability.
Obviously no-one ever does this, because it will show that wind without storage and backup is unsaleable and terminally unprofitable.
So the question is: why do intelligent academics, often with finance backgrounds, come up with something as absurd as the levelized cost comparitor? Why does Ars Technica and the Guardian keep using it as the basis for the claim that renewables are cheaper? I cannot avoid the conclusion that its simple deliberate intellectual dishonesty.
Wind generation, in an open market, is simply unsaleable to power suppliers. You’d have to pay them to take it.
“So the question is: why do intelligent academics, often with finance backgrounds, come up with something as absurd as the levelized cost comparitor?”
Well it’s like this with the unreliables. To have a level playing field you’d have to mandate that no supplier of electrons to the communal grid could supply anymore than they could reasonably guarantee (ie short of unforeseen mech. breakdown) 24/7 all year round. That way in order to lift their average tender they’d have to invest in storage or partner with thermal and pay them their just insurance premia or some combination of the two.
But here’s the rub. Who among all the king’s horses and all the king’s men are going to tell all the mums and dads with rooftop solar, if you can’t guarantee the electrons you can keep them and that’s before the taxpayer has to compensate all the big solar and wind generators for changing their contractual rules. Oops sorry folks we got it wrong aint gunna happen and consequently Australia’s national grid heads for the inevitable train wreck as the coal fired stations expire one after the other.
Gore was wrong about Global Warming in the ’80s, why should we trust him now?
Wind is becoming quite popular with Midwest farmers and government subsidy farmers whether in energy production or climate research. You’d think that farmers of all kinds could get enough subsidies, but apparently not. De-subsidize energy.
If those who can prove Gore is lying or misleading the public in his own interests, why cannot someone take him to court.
He is doing a disservice to his Country and its people ànd is costing them.
He has been and has sued numerous times and has won and lost. Lawyers always win but plaintiffs do not.
EIA generation production cost estimates clearly identify the misleading nature of trying to compare dispatchable and reliable generation production cost resources including coal, natural gas, nuclear and hydro with non-dispatchable, unreliable and highly subsidized renewable generation. Renewable energy advocates and media hide these critical performance and cost differences which misrepresent the higher costs and reliability degradation which high levels of renewables place on electric grid operation.
The latest EIA production costs data can be found here: https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf
Key reservations about the misleading comparison of dispatchable and non-dispatchable production costs by EIA are noted as follows:
“Because load must be balanced on a continuous basis, generating units with the capability to vary output to follow demand (dispatchable technologies) generally have more value to a system than less flexible units (non-dispatchable technologies), or than units using intermittent resource to operate. The LCOE values for dispatchable and non-dispatchable technologies are listed separately in the tables, because comparing them must be done carefully.”
“The direct comparison of LCOE across technologies is, therefore, often problematic and can be misleading as a method to assess the economic competitiveness of various generation alternatives because projected utilization rates, the existing resource mix, and capacity values can all vary dramatically across regions where new generation capacity may be needed.”
“Federal tax credits for certain renewable generation facilities have the potential to substantially reduce the realized cost of these facilities.”
“Production Tax Credit (PTC): New wind, geothermal, and biomass plants receive 24 dollars per megawatthour ($/MWh); technologies other than wind, geothermal, and closed-loop biomass receive $12/MWh.”
“Investment Tax Credit (ITC): New solar photovoltaic (PV) and thermal plants are eligible to receive a 30% ITC on capital expenditures if the plants are under construction before the end of 2019, after which the ITC tapers off for new starts to 26% in 2020 and to 22% in 2021.”
Wind and solar power can easily be made cheaper than coal and gas. First you handicap coal and gas by slapping a carbon tax on them. Next you incorporate the extra infrastructure costs in general costs rather than on the renewables bill. Finally you omit the cost of subsidies specifically paid to coal and gas plants to keep them on line as back up for wind and solar. Job done. See how cheap it is?
Lazard? What a joke their “guesstimates” and “assumptions” are +/- 100 %!
It would clear the air if a proper cost comparison was published. I have read several Australian ones that negligently ignore or downplay factors such as government requirements to favour renewables. Geoff.
U.K fuel tax is on use, not the fuel. If you make your own bio diesel, you still have topay the tax. If you work out how touse water as fuel, then you must pay the tax on it. Sothose who use electricity as fuel are liable for the tax on it.