Contributed by Robert Lyman © 2017
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Proponents of wind and solar electricity generation plants contend that the costs of these plants are now, or soon will be, lower than those of conventional electricity generation plants based on nuclear energy, hydro or the combustion of fossil fuels. Is this true?
There are many different cost factors to take into account, including notably the initial capital costs of the plants and their operating, maintenance and repair costs; these ultimately are reflected in the purchasing utility’s total expenditures over the life of the plants and the costs that are passed on to electricity consumers in the form of higher rates. Costs, however, are only one element to consider in determining the economic viability or merits of a plant; others include its capacity utilization (the average power generated as a percentage of the stated capacity, or “nameplate” capacity, of the plant); whether it is “dispatchable” (variable to meet changes in demand) or instead intermittent and unreliable; its ability to supply electricity at peak demand periods when it is most needed; and its effects on the market value (“pool price”) of generation, especially when the electricity generated exceeds the demand
Since 2000, the actual costs of newly added wind and solar generation have significantly exceeded the costs of other sources of power generation. This is especially evident in Europe, where the capital costs of onshore wind projects per gigawatt (GW) of generation has been 16 times that of natural gas fired generation and that of solar PV on the grid has been 63 times that of natural gas fired generation. By 2014, the countries of the European Union had spent over 1.1 trillion euros (CDN $1.68 trillion) on wind and solar generation. Over the lives of the contracts existing in 2014, the EU countries made some 3.1 trillion euros (CDN $4.74 trillion) in financial commitments. In the province of Ontario, the government’s granting of above-market feed-in-tariffs – “FIT” (a form of fixed, contracted subsidies) to renewables under 20-year fixed price contracts, with “first-to-the-grid” rights, has provided large subsidies valued by different sources from CDN $6.4 billion to $9.2 billion and left the provincial utility with up to $38 billion in long-term unfunded liabilities
The U.S. Energy Information Administration estimates the levelized capital and operating costs (LCOE) over the lives of new electricity generation plants that will enter service in the near future. The most recent estimates, for plants entering service in 2022, indicate that new natural gas combined cycle and gas advanced combined cycle will have the lowest cost (U.S. $57/MWh) among the dispatchable sources of generation. Among the non-dispatchable sources of generation, the lowest cost sources will be onshore wind ($64/MWh), hydroelectric
($66/MWh) and solar PV ($85/MWh).
Other sources challenge the EIA’s LCOE methodology. Notably, the Institute for Energy Research observed that the EIA ignores the comparison between the cost of new generation and the cost of continuing to operate existing fossil fueled (mainly coal-fired) power plants to the end of their economic lives instead of shutting them down prematurely. It also questions the EIA’s assumptions concerning the utilization rates of renewable energy plants and the prices of natural gas. It estimates the LCOE of existing conventional coal plants in 2015 to be U.S. $40/MWh and that of gas combined cycle plants to be U.S. $34/MWh.
The most fundamental challenges to the EIA findings are from experts who emphasize the differences in the costs and value of intermittent versus dispatchable electricity generating sources. They argue that the LCOE approach is flawed because it treats all megawatt hours supplied as a homogeneous product governed by the law of one price, and thus does not account for the fact that the value (wholesale market price) of electricity supplied varies widely over the course of a typical year. LCOE also ignores the necessary costs of backing up intermittent sources with conventional power (typically natural gas) and the many additional costs of the power grid operator needed to integrate wind and solar, along with the need for additional transmission lines.
Comparing the average household electricity prices in Europe and North America shows clearly that the price of power rises dramatically, as the proportion of photovoltaic and wind capacity per inhabitant rises. Prices in Germany and Denmark are almost three times higher than in the United States.
The higher costs quoted for renewable energy do not include most of the taxpayer subsidies provided to renewables.
If, as proponents of wind and solar claim, the economic costs of renewable energy generation will soon be less than those of conventional sources, they should have no objection if governments eliminate the present subsidies, above-market tariffs and portfolio mandates establishing minimum utility purchase requirements. It is telling that none of these advocates is proposing this in any jurisdiction.