Contributed by Robert Lyman © 2020. Lyman’s bio can be read here.
In a previous report and post entitled, “Broken Promises: Why Renewables Offer No Resilient Recovery: Part 1″, I began to respond to the claims of renewable energy advocates that governments should devote far more taxpayers’ money to renewables as a way of stimulating economic activity after the current Coronavirus pandemic subsides. Part 1 explained the trends in global energy markets and compared the markets for oil and natural gas with those for wind, solar and biomass energy sources. In this part, I will present an analysis of the costs of renewable energy sources.
Ontario and Germany offer real-life examples of what happens when governments chose to spend billions of electricity ratepayer’s dollars on renewable energy sources (i.e. industrial wind turbines, solar photovoltaic panels, and biomass-burning power plants). Both jurisdictions offered feed-in-tariffs whereby renewables generators were given above-market prices for power purchased under long-term contracts. Renewables also received “first-to-the-grid” rights and many other subsidies and advantages not available to conventional energy suppliers. The rates for residential consumers in Ontario doubled after the Green Energy Act was passed in 2009. In Germany, electricity prices rose to the equivalent of Cdn $1.42 per kilowatt-hour (kWh), nine times the price that would have applied with no solar and wind capacity. If people in Canada were forced to pay electricity rates at German levels, the annual household bill would be over $4,600. In Ontario, the cost of the Green Energy Act contracting is over $4 billion per year.
The cost of new renewable energy added to the electrical grid is a subject of great controversy. Under the “levelized cost of energy” (LCOE) calculation, which attempts to measures all costs over the life of an investment, the cost of wind and solar energy to be added in 2025 has been declining rapidly. That analysis, however, has been strongly contested for what it leaves out, notably the systemic, or grid-wide, costs of intermittent energy. To illustrate, electricity that can be supplied by a wind generator at a levelized cost of 6 cents per kWh is not “cheap” if the output is available primarily at night when the market value of electricity is only 2.5 cents per kWh. The cost reductions wind and solar have experienced so far are nearing the limits of what physics allows.
The consideration of costs would be incomplete without taking into account the extraordinary subsidies and other advantages granted by governments. From 2010 to 2019, total U.S. federal government subsidies for wind were $36.8 billion and for solar energy were $34.4 billion. When measured in terms of per unit of electricity generated, the subsidies were U.S. $82.46 per MWh for solar and $18.86 per MWh for wind. Unfortunately, comparable figures are not available for Canada.
Modern biofuels, which include ethanol and biodiesel for transportation and woody biomass for electricity generation, are not economically viable in the absence of government subsidies or mandates. Biodiesel costs about U.S. 55 cents per liter to produce, or 20% more than corn-based ethanol. The long search for a technological breakthrough that would lower the cost of cellulosic biofuels has not succeeded. Today, if a commercial-scale plant were available, cellulosic biofuels would sell at U.S. $35 per gallon, more than ten times the price of gasoline in the U.S. today.
Because woody biomass is based on plant growth, it is treated under U.N. greenhouse gas accounting rules as having zero emissions. In fact, a recent U.S. study found that a biomass-fueled electricity generation plant emits 50 to 85% more than a coal plant, and 300% of a natural gas-fired plant.
The declining capital and operating costs are more than offset by the extremely high grid system management costs of introducing solar and wind. They represent low-productivity energy sources that are not self-sustaining, use a disproportionate amount of land, have deleterious environmental effects, and pose risks in terms of the stability and reliability of energy supply.
The ultimate energy and climate policy considerations should be the ones that are almost never taken into account by governments in Canada and other OECD countries – the costs per tonne of GHG emissions avoided and the marginal benefits of lower emissions on the climate. If they were, it is unlikely we would invest in renewables at all.