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The Cost of Green Dreams
Still Waiting for Solar’s Day in the Sun

Skimming headlines these days, you might be left with the impression that solar energy, the energy source that seems eternally poised to change the energy game, is finally going to live up to its potential in coming years. Bloomberg tells us that:

Renewable energy is now a force to be reckoned with. Last year non-fossil fuels, including nuclear, accounted for more of the increase in global energy consumption than oil, gas and coal combined. Particularly notable are record installations of solar panels.

Meanwhile, the Economist reports:

[T]he prospects for a clean-energy future have never looked brighter. The cost of solar power is tumbling thanks to new technology and greater efficiency—the average cost of a residential solar system in the United States is $3.48 a watt, 10% down on last year.

Never-brighter prospects, record solar panel installations, greater efficiencies…it sounds like solar energy has reached the tipping point greens have always promised. But that’s only if we discount certain facts. As Varun Sivaram writes for the Council on Foreign Relations’ Energy, Security, and Climate blog:

Today, unsubsidized silicon solar panels are not cost-competitive with conventional generation in the United States. To seriously challenge fossil fuels around the world, solar PV must achieve “grid parity,” or a cost that is competitive with other power sources on an unsubsidized basis…

[Authors of “The Future of Solar” report from the MIT Energy Institute] find that a large, utility-scale solar installation is not competitive with a combined-cycle thermal plan—a common natural gas generator—regardless of whether the solar is sited in a sunnier location (they use California and Massachusetts as representative cases of sunny and cloudy climates)…even with [a] generous set of assumptions that stacks the calculation in solar’s favor, the [levelized cost of electricity] of solar remains higher than that of natural gas in California’s sunny climate.

If and when solar technology becomes advanced enough to elbow out fossil fuels for market share on its own merit, we’ll be its biggest cheerleaders. Though major questions about energy storage and new grid designs still need to be answered, a solar panel efficient enough to produce electricity cheaper than coal, for example, would be a wondrous thing.

But subsidizing today’s generations of solar panels doesn’t help us achieve tomorrow’s dreams. Instead, it plows precious government money, as well as social and political capital, into a technology that raises electricity bills and is still plagued by the intermittency problem. These choices impose a large opportunity cost: money spent on propping up current generation solar could be spent on the research and development solar needs to claim its rightful spot in the global energy mix.

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  • Nevis07

    Normally, I’m in complete agreement with TAI on energy issues. I’m all for fracking for example and nuclear power as well, but I think TAI is wrong on this one. It’s not as simple as a straight comparison of energy price generation today.

    The statement of “subsidizing today’s generations of solar panels doesn’t help us achieve tomorrow’s dreams” is not entirely accurate – and believe me, I’m not a fan of big government.

    To understand why, you have to think about financing. A huge oil and gas plant in the middle of the arctic is incredibly expensive to operate and likely will require not just massive upfront capital investments to start with but also keep in operation. Save the wildcat frackers, you have to keep in mind that the oil majors are having to go to more and more extreme locations to extract more oil and gas. That means higher fossil fuel prices to be sustainable – which in turn means, an easier price parity for solar and other renewables – so it isn’t true that comparing prices today is the only way to decide which primary energy sources should be invested in.

    Also, keep in mind that we’re in a battle for first mover advantage for a new industry with China mostly. There are great benefits to being the first to truly capitalize on a certain market. So, subsidizing a nacent industry could ultimately be more beneficial than the subsidy and research.

    And talking of battery technology, Tesla’s new home battery is pretty interesting. It’s just a first generation device, but give it a four or five years and you can imagine prices going down a ways, which directly supplements a smart grid based on non-on demand power sources. Harvard is working on some really interesting energy storage technology based on graphene properties. My point is, with the accelerating technological gains, you have to look out 30 or 40 years worth of capital investment to understand where the smart money should be put.

    For those interested, take a look at this article. It’s a little dated as it was just before the price of oil dropped last year, but it makes my point showing that oil prices have to remain high for the industry to make large capital investments worthwhile (i.e. – not a failed investment, they need oil sustained around $120):

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11046842/Oil-industry-on-borrowed-time-as-switch-to-gas-and-solar-accelerates.html

    • Wayne Lusvardi

      A major supposition of economics is that there is no such thing as a free lunch. And there is no such things as free or below market cheap, clean energy.

      A problem that has emerged from Germany’s adoption of renewable power (“Energiewende”) has been that green power, mostly likely from wind machines, has dropped to lower than the cost to produce it. What? That’s right. In other words, wind and solar can’t be produced at sufficient price to cover their costs.

      Read: Jesse Jenkins, A Look at Wind and Solar, Part 2: Is There a Limit to Variable Renewables?, The Energy Collective, May 28, 2015.

      Quote from the above link: “Wind and solar produce electricity at roughly zero marginal cost. In effect, whenever they are generating, they shift the supply curve of the power plants to the right, or the so-called “net-demand curve” (demand minus wind/solar output) to the left. Like any market, more supply and equal demand means lower prices. In the electricity market, this is known as the ‘merit order effect’.

      In other words, wind and solar depress the market price at exactly the times of day these VRE’s are generating the most power. The revenues earned by wind and solar for each unit of generation thus falls as the share of renewable rises.

      In short, wind and solar eat their own lunch!” (or more aptly eat their own free, subsidized lunch).

      More quote:

      “This is also why the idea of reaching “grid parity,” or a levelized cost equal to the prevailing market price, is pretty meaningless. As soon as wind or solar penetration grows, the goal posts move further away due to this merit-order or market price effect. Wind and solar costs will have to keep falling to secure greater penetration levels and remain profitable at the ever lower and lower market prices caused by increasing VRE penetration.

      Alternatively, if wind and solar are to remain subsidized, the amount of public subsidy per unit of energy supplied will have to keep growing in order to push VRE shares higher and higher. The total subsidy cost could rise sharply, as the price per MWh required increases alongside the quantity of electricity generated from these sources.”

      Also, those who post comments disclaiming that they are not renewable energy advocates but do not identify who they are lose credibility in their argument.

  • Fat_Man

    Call me when they have figured out how to solve solar’s biggest problem — the sun. It sets every day. Further output can drop between 50 and 75% on a cloudy day. Every day has a night, and a majority of days around my location are cloudy. There are no economically viable systems for storing large quantities of electricity, therefor every watt of solar you are relying on must be backed up by a watt of something else. These days that is usually natural gas generation. This doubles the capital cost of solar systems.

    Third, north of the tropics there is an annual variation in the amount of available solar energy. In my location at 40 north, the ratio between available solar energy in June and the amount in December is about 2.67 to 1. The amount of electricity used does not vary nearly that much. Electricity used for air conditioning in the summer is used for lighting, heating, and cooking in December. We often hear brownout alerts on the coldest days of the winter.

    • Pait

      Sunsets are as predictably frequent as Fat Man’s posts about the sun setting 😉

  • CaliforniaStark

    A major problem with solar is the actual amount of electricity produced is significantly lower than solar’s estimated full “nameplate” capacity; which refers to the amount of electricity an energy source would produce if it operates continually during a 24/7 time frame. Because of the intermittant nature of solar energy, the average actual amount of electricity produced by solar is about 18% of its full nameplace capacity. This contrasts with the more than an 80% actual generating capacity for a modern combined-cycle natural gas plant, or a coal plant; and 90% actual generating capacity for a nuclear power plant.

    In 2013, the new “nameplate” electrical generating capacity added in the United States by percentage included 48% natural gas; 21% solar; and 11% coal. The percentages become far different if you calculate the actual electricity produced by solar at 18% of nameplate capacity, versus electricity producted by natural gas and coal at 80% of nameplate capacity.

    Notwithstanding “record solar panel installations”, the EIA projects that in 2015 solar will only produce 0.6% of U.S. electricity. The issue is not so much the subsidies, as the focus upon a very inefficient energy source.

  • Pait

    As you probably know, subsidies to conventional energy sources are also enormous. The largest ones are in the form of externalities – costs of conventional energy that are paid by all, not only by users or producers.

    • Josephbleau

      I like the externalities of coal and oil, great jobs for poor Appalachians and Cajuns. In the US today there is less particulate matter emitted than the average light industrial plant, if you live next door to a coal plant there is no soot or asthma risk. We wet scrub most coal plants for SO2 removal which dissolves or impounds all airbonres.. The only objection is the dubious CO2 global warming, so that is the tool the EPA uses to wreck havoc on the American economy, they are not shutting coal down because it is dirty or causes disease.

      • Pait

        I was not aware that there is much of a coal industry in Louisiana. But then, in the parallel world of science deniers, perhaps there is.

        • Josephbleau

          If you read my comment you may see that I said coal and oil. In your parallel world perhaps there is no oil in Louisiana, you oil Denier

          you.

        • Josephbleau

          Your suggestion that I edited is an untruth, your subsequent comment is absurd.

          • Pait

            Alright, I’ll erase the whole post then, sorry.

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