Determining the True Cost of Renewable Energy
About my recent piece on my preparations for an interview with the Cato Institute, frequent commenter and very smart fellow Carl B. Freedman notes:
It seems you are ready to cede the high ground on many of these points when you don’t have to.
(You write that) renewable energy is more expensive than fossil fuels. This is not really true. Buying solar panels means you are buying 35 – 50 years of power at once, even if FF prices were flat for the next 35-50 yrs (and they won’t be), that many years of power would cost more than the solar panels. These price comparisons FF advocates use are flawed due to the fact FF costs go on forever, renewables reach a payback, and then are free for the rest of the systems lifespan save for maintenance. Wind power is even a better deal, so in fact solar and wind are actually cheaper, even without subsidy. What is very true is that with renewables, you pay almost all of the cost up front. This doesn’t even touch on the cost of externalities, like how the toxic emissions of mining, processing, transporting, and combustion of fossil fuels drives up health care costs by degrading our air, water, land, and ultimately our food.
There are a number of excellent points here that bear further discussion. Personally, I find compelling the analysis of “levelized cost of energy” or LCOE, which contemplates the cost of real estate, capital equipment, fuel, and operations/maintenance over the life of the equipment, as well as the cost of capital associated with the fact that, as you pointed out, renewable energy has the unwelcome issue of requiring nearly the entirety of the investment to be paid in advance. These LCOE analyses tell us that wind is close to “clean” coal, that PV is gaining but currently lags behind, etc.
Your point at the bottom is, of course, huge. None of these analyses take into consideration the enormous externalities associated with things like healthcare, long-term environmental damage, wars and other national security concerns, etc. I’m delighted to see that the world is making steady progress in the direction of recognizing these things and taking them into consideration.
I’m not sure that the statement; “LCOE analyses tell us that; wind is close to ‘clean’ coal”, is valid. By ‘clean coal’ I assume this refers to coal plus CCS. Correct me if I’m wrong but to the best of my knowledge there are no commercial large scale ‘clean coal’ power stations in operation yet, certainly not un-subsidised so its LCOE has to be based on assumptions whereas the LCOE of wind is known.
With respect to PV however I would suggest that if the right PV technology, i.e. CPV, is located in a suitable location, e.g. Nevada Desert, Sahara desert etc. then its LCOE could beat ‘clean coal’ now. A report in ELP (Mar 2009) estimated the LCOE of clean coal at 11¢ to 12¢ per KWh(http://www.elp.com/index/display/article-display/358794/articles/electric-light-power/volume-87/issue-2/sections/generation/clean-coal-power-generation-the-uncertainties-beyond-carbon-policy.html ). Compare this to Green and Gold’s SunCube CPV modules that they claim are actually achieving 6¢ to 8.5¢ (Aus) per KWh (AUD:USD ~= 1:1) with large installations and without any subsidies (http://www.greenandgoldenergy.com.au/). Which makes CPV about 30% cheaper than ‘clean coal’!
Do these comparative costs consider interest?
Obviously if the return on the investment is less than the interest rate, a project does not make economic sense. Even if one pays cash instead of borrowing the money, there is the opportunity cost since if the investment had not been made in renewable energy, it could have been made elsewhere. However, there are sometimes considerations other than pure economics, but when arguing relative costs, it is necessary to use a careful discounted cash flow or internal rate of return analysis and often that is not done.
Installing solar power generation in the Sahara desert has been considered. It is unlikely to happen. The moving sand dunes would make it impractical. Also, solar systems do require water. The water is needed to wash dust off of transparent surfaces or off of mirrors. Also, solar thermal electric systems require water cooling for adequate efficiency.
Wind and solar power can be justified in situations where Diesel power is the only practical option, which is the case in small island nations and in some remote areas. But as a significant source of power in large prosperous nations, their intermittent nature makes them impractical, aside from the cost.
As for “clean” coal, it is questionable whether that will ever be achieved. The CO2 can be removed from flu gasses, but it is unclear whether there is any way to sequester it where escape is impossible.