Renewables Marginally More Expensive

on July 29, 2013 at 12:00 PM

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Arguments about expensive, exotic renewables are dated

If you are among those who still believes that renewables are exotic, expensive, unreliable, intermittent or whatever, you may be fighting a losing battle. With each passing day, renewables are gaining ground, and their shortcomings, most notably intermittency, diffused energy source and low capacity factor, are getting compensated in ingenious ways. Moreover the cost of generating electricity from renewables continues to fall while their performance and reliability improves, making it virtually inevitable for grid parity to be not far away.

Numerous studies come to the same conclusion: some renewable technologies are only marginally more expensive than conventional ones using fossil or nuclear fuel. If the cost of externalities, such as greenhouse gas emissions, are included, the gap becomes even narrower. Considering broadly rising cost of conventional fuels/technologies against the persistent drop in renewable costs, makes the case even more compelling.

Powering Up

The above chart, from the Energy Information Administration (EIA), shows the projected levelized cost of electricity from alternative generation sources in 2018. Like any study of this kind, the results are critically dependent on assumptions about fuel prices, construction costs and a number of other factors, yet the inescapable conclusion is that on-shore wind, geothermal and hydro will beat conventional coal by 2018 – and will be far more economic compared to advanced coal, defined as technology with carbon capture and sequestration (CCS).

An article which appeared in 18 July 2013 in The Wall Street Journal, reported that data provided by Duke Energy Corp. during a recent debate on the fate of renewable portfolio standards (RPS) in North Carolina, estimated that the marginal cost of meeting the RPS amounted to 19 cents per customer per month. Most people, even Republican politicians who control all branches of government in NC, would agree that 19 cents/mo. is a trivial amount not worth debating.

The WSJ article reported that Republican Mike Hager, the majority whip in NC House and the Chairman of the Standing Committee on Public Utilities, wanted to scrap a 2007 mandate that requires 12.5% of retail sales in NC be met from energy efficiency and/or renewable resources by 2021 (map below). Being a fiscally conservative Republican, he figured he would have the backing of his colleagues. According to the WSJ article, his proposal did not get enough Republican votes to pass Mr. Hager’s own committee.

RPS Will Not Harm You

Of the 29 states that have mandatory RPS requirements – few more have set aspirational targets but have not passed laws – 14 were considering to repeal or weaken the laws – according to the same article – yet none succeeded – as the NC’s case illustrates.

The most compelling thing in favor of renewables is their continued falling costs – something that does not appear to apply to nuclear power or coal with CCS technology. The cost of power from natural gas plants is relatively cheap, but that is mostly explained by currently low US domestic prices. There is no guarantee that natural gas prices will always stay low. The fuel component cost of renewables, by contrast, is zero and is not tied to rising price of fossil fuels.

In a recent interview with Deutsche Welle, which appeared in CleanTechnica, Bernhard Beck, CEO of Belectric, a German solar developer, predicts that solar power will become cheaper than coal “sooner rather than later.” If it sounds a bit solipsistic coming from a solar developer, it is. Yet, Beck, like many others with similar views, are getting increased attention as solar costs keeps on falling while coal is facing increased pushback in a number of developed economies, US included – recall last month’s lead article, titled: Obama declares war on carbon.

According to Beck, large-scale solar power in Germany is already “approaching the costs” of conventional power, at €10 cents/kWh. He figures that with additional technological improvements, the cost of solar power in Germany, and by extension, other relatively sun-poor countries, will ultimately fall below the cost of conventional energy.

Beck foresees a much shorter time span in sun-rich countries, where solar power is approaching €10 cents/kWh, which could make solar cheaper than wind, not to mention coal or gas.

Beck mentioned a recent case in 2013 where El Paso Electric Company and First Solar collaborated in a project to sell solar-generated power at 5.8 ¢/kWh, a bargain compared to new coal-fired generation, which currently has a cost in the 10-14 ¢/kWh range – assuming you can get permission to build one.

Perry Sioshansi is the President of Menlo Energy Economics and Editor & Publisher of EEnergy Informer. He can be reached at [email protected].
His latest two books are Energy Efficiency: Towards the End of Demand Growth and Evolution of Global Electricity Markets, both published in 2013 by Elsevier. Further details & 30% discount available here