The Real Cost of Wind and Solar

Guest Post by Willis Eschenbach

I keep reading how wind and solar are finally cheaper than fossil fuels … and every time I’ve read it, my urban legend detector rings like crazy.

It rings in part because the market is very efficient at replacing energy sources based on their cost. Here, for example, is the story of kerosene, emphasis mine:

When a clean-burning kerosene lamp invented by Michael Dietz appeared on the market in 1857, its effect on the whaling industry was immediate. Kerosene, known in those days at “Coal Oil”, was easy to produce, cheap, smelled better than animal-based fuels when burned, and did not spoil on the shelf as whale oil did. The public abandoned whale oil lamps almost overnight. By 1860, at least 30 kerosene plants were in production in the United States, and whale oil was ultimately driven off the market. When sperm oil dropped to 40 cents a gallon in 1895, due to lack of demand, refined petroleum, which was very much in demand, sold for less than 7 cents a gallon. …
SOURCE

My question was, if wind and solar are so cheap, why are they not replacing traditional sources overnight?

So I decided to look into the question. The main number used to judge how expensive an energy source might be is called the “LCOE”, the Levelized Cost Of Energy. It takes into account all of the costs for new power plants—capital costs, overhead and maintenance costs, fuel costs, financing costs, the whole gamut of expenses for that power source. Well … except for one cost, but we’ll come to that later.

Here is the latest information on the LCOE for various energy sources, from the U.S. Energy Information Administration (EIA) 2021 report entitled Levelized Costs of New Generation Resources.

Figure 1. US IEA levelized costs of electricity, 2021.

And yes, that clearly says that onshore wind and standalone solar are cheaper than any other source of energy.

I looked at that, and my urban legend detector started flashing red and the needle pegged out … why?

Because of the numbers in the first column, the “capacity factor”. The capacity factor for an electricity generation system is what percentage of the “nameplate” generation it actually produces. For example, if the nameplate on a windmill says it will generate 16 gigawatt-hours (GWh, or 10⁹ watt-hours) per year if it ran 24/7/365, and due to the intermittent nature of wind it only actually generates a quarter of that, then its “capacity factor” would be 25%.

I looked at the claimed capacity factors for wind and solar, which according to the US EIA folks are 40%+ and 30% respectively, and I thought “No way. Not possible.”

Now, part of the error in the solar capacity factor is explained by footnote 4, viz:

⁴Technology is assumed to be photovoltaic (PV) with single-axis tracking. The solar hybrid system is a single-axis PV system coupled with a four-hour battery storage system.

Why is that a problem? Well, because tracking systems need to move each individual solar panel at a steady rate during the day so the panels always face the sun. Then, at the end of the day, they rotate the panel back to its starting position. Unlike fixed systems, these require a complex installation of motors, time sensors, bearings, levers, and the like to rotate the panels.

And because such mechanical “single-axis tracking” systems are expensive to install, expensive to operate, expensive to maintain, and subject to damage from weather, it is very rare for a grid-scale solar farm to use such systems. Almost without exception, they are fixed-angle systems with the panels mounted securely to a (theoretically) wind-proof frame like those at the Topaz Lake Solar Farm shown below.

Figure 2. Solar panel fixed mounts, Topaz Lake Solar Farm, one of the world’s largest.

If you imagine the necessary motors, gears, levers, and other mechanisms required for a single-axis tracking system to be able to rotate each and every one of those nine million! solar panels to follow the sun throughout the day, you’ll understand why fixed solar panels are the norm for grid-scale installations.

In any case, I thought I’d find the real data on this question of capacity factors. The amazing source, Our World In Data, has all of the information needed. Here is the current average of all of the world’s real-world wind and solar installations in the most recent year for which we have data, 2019.

Figure 3. Actual and theoretical (nameplate) generation, 2019 data.

As you can see, the US IEA is way off in fantasyland about the capacity factors of wind and solar. In both cases, they are claiming far larger capacity factors than we have out here in the real world.

Now, in Figure 1, they claimed levelized costs as follows, in US cents per kilowatt-hour:

• Combined-cycle gas — 3.45¢ per kWh
• Solar — 2.90¢ per kWh
• Onshore Wind — 3.15¢ per kWh

That’s the basis for the claims that renewables are now the cheapest sources of electricity. However, given the actual capacity factors, in reality these costs are:

• Combined-cycle gas — 3.45¢ per kWh
• Solar — 6.21¢ per kWh
• Onshore Wind — 4.97¢ per kWh

“Cheapest sources”? No way.

And as for offshore wind, they’re just as far off. They claim 11.5¢ per kWh, but the new Block Island offshore wind farm is charging the utility, not the customer but the utility, 24.4¢ per kWh …

And finally, there is a huge elephant in the US EIA room … backup power. This is the missing cost I mentioned above.

If you add a gigawatt of unreliable intermittent renewable wind or solar energy to a system, you also have to add an additional gigawatt of some kind of reliable dispatchable energy, where “dispatchable” means you can turn it up or down at will to replace renewables when there is no wind or sun. The US EIA levelized cost document linked above does mention the need for backup … but it doesn’t even touch the cost of backup. All it says is:

Because load must be continuously balanced generating units with the capability to vary output to follow demand (dispatchable technologies) generally have more value to a system than less flexible units (nondispatchable technologies) that use intermittent resources to operate. The LCOE values for dispatchable and non-dispatchable technologies are listed separately in the following tables because comparing them must be done carefully.

They say that dispatchable technologies have “more value to a system” … but they fail to mention that “more value” translates into higher real-world costs for non-dispatchable renewable technologies.

How much higher? Well … they don’t say. But you can be sure that it won’t be free. At a bare minimum, it will be the capital cost of the dispatchable backup generator plus some portion of the other fixed, variable, and transmission costs … and that means that because of the costs of the needed backup generators, there is very little chance that solar and wind will ever be competitive with other methods.

TL;DR Version: Neither wind nor solar are ready for prime-time, and due to their need for backup power, they may never be ready.

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Here on the hill above the ocean, my gorgeous ex-fiancee and I are preparing to visit relatives in northern Florida. We’ll be on the road starting Tuesday for about three weeks, leaving our daughter and son-in-law here in the house to enjoy the sun. If you live in the northern Floridian part of the planet and would like to meet up, drop me a message on the open thread on my blog. Just include in the name of your town, no need to put in your phone or email. I’ll email you if we end up going there. No guarantees, but it’s always fun to talk to WUWT readers in person. I’ll likely be posting periodic updates on our trip on my blog, Skating Under The Ice, for those who are interested.

My very best to everyone,

w.