Conventional thinking on energy costs has been stood on its head.
By George Harvey
In December, we got word from two different, highly respected sources, that the cost of solar electric power has now dropped so far, that it is now our least expensive power source. The sources, Bloomberg New Energy Finance (BNEF) and Lazard are both financial advisors. It is important to understand the implication of this; both organizations get their income on the basis of the accuracy of their analysis, so the axe they have to grind is to be correct.
News from BNEF came out with its data first in its report, Climatescope 2016 (see ). While the BNEF report said that the price of electricity generated with solar photovoltaics (PVs) had dropped to the point that it was the least expensive available, it also pointed out that emerging countries are spending more on solar power than wealthier ones. China is the leading solar PV installer. We might also point out that over half the new wind power installed in 2016 was in China.
The other report is Lazard’s Levelized Cost of Energy Analysis – version 10.0 (see ). which provides the energy comparison (LCOE), for which Lazard is widely known. This deals with actual costs, derived from market activity in 2016, and it factors in subsidies. It shows solar power as marginally higher cost than its least costly energy source, wind power, for the full year of 2016. The cost of solar power is dropping much faster than the cost of wind, however, so it is clear that at year’s end solar should be less expensive.
Here is some data derived from the LCOE table, which covers the entire year:
When we interpret these data, we do have to be careful to understand that generators have very different characteristics. Because of this, they have to be used differently as demand changes. Coal-burning and nuclear plants can take many hours to change their output. For that reason, the base-load power they provide is usually not much more than the minimum required for low demand periods. Combined cycle natural gas plants can change more quickly but still require many minutes to hours to get going. Peaking natural gas plants are yet quicker in their response times, taking only a few minutes. Energy flow from batteries can be turned up or down in fractions of a second. In the end, the load has to be balanced, so all these resources have been used.
In New England, the typical day’s high demand for electricity is about 150% of low demand. The high demand period happens to coincide with daylight times and early evening. In the past, peaking natural gas plants were used to cover part of this difference, at an average cost, the data shows, of $191/MWh. Competing with this is solar, at about $53/MWh, when the sun shines, and solar with storage at $92/MWh when it is not. Clearly, there is less reason to use peaking natural gas plants on days when the sun shines and evening, following sunny days, because of the enormous savings solar power offers.
With decreasing costs of solar power, the shift to solar power for peak demand times has already been underway for a couple of years. With the added impetus from lower storage costs, we can now expect a somewhat more rapid shift away from natural gas to supply peaking power on sunny days.
We have an ability to anticipate those times when the sun will not shine, and this means high demand times on cloudy days can be anticipated. Also, cloudy days tend to have lower peak demand than sunny days. These being the case, it seems likely that peaking natural gas plants will not be used much on those days either. This is especially true with increases in available wind power.
We should note that solar power backed up with storage is also less expensive than power from nuclear and coal-burning plants. Solar power, in combination with storage, can now start competing with these traditional base-load power sources on a purely cost-competitive basis. And, as the costs of storage and solar continue to decline, we can expect that solar power will not only be the least expensive overall, but in the near future solar plus storage to be the least costly source of base-load power.
Unsurprisingly, according to the Energy Information Administration, an office of the Department of Energy, utility-scale solar accounted for 37% of all installations they tracked for 2016 (see ). Since rooftop and small community installation are usually about 40% of the total for solar, it seems very likely that PVs accounted for about half of all new generating capacity in the country for 2016.
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