When is the Renewable Crossover?

By Dana Blankenhorn
May 27, 2011 | 46 Comments

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As much as some people look forward to the Rapture, people in the renewable energy space look forward to “the crossover.”

The crossover is the point in time where the costs of solar energy fall below the price of fossil fuels.

The importance of this point can't be over-estimated, because costs will keep falling after that point.

Solar energy will become the cheap energy, then the cheaper energy, then the cheapest energy, reaching a point where it costs less to harvest solar energy than to dig up stuff to burn.

Mark Little of General Electric now thinks we can reach this first crossover in three-to-five years. He's basing his estimate on the price now charged for grid energy in Connecticut, where GE is based. That's 18.1 cents per kwH. Little estimates solar costs at 15 cents per kwH in 2016.

Getting solar below the price of fossil energy is one thing. Getting it below the cost of fossil energy is something else. Once we reach that point, renewables can quickly become the dominant energy source because of economics, not politics.

The way we get from today's prices to tomorrow's isn't just through technology, as much as I like to write about it. It's through scaling.

Companies like GE can scale production. Installers like SunPower will be able to scale installation as oil companies like Total buy-into them. Total's successful bid for 60% of SunPower was at a 44% premium to its market price. The French oil company is expected to complete its acquisition in 2013.

This is the first deal of its kind. As the crossover approaches it is certain not to be the last.

Analysts continue to predicate their studies of renewable energy installations on subsidies, sparked or stalled by the prospects of climate change legislation, but serious money is being invested in anticipation of the crossover, not government intervention.

Right now the renewables sector is called “highly politicized” by analysts, but once the crossover happens – whether it's in 2016 or 2017 most agree it's out there – the political controversy will be over.

It's the energy industry's crossover that's the most important one of all.

Green Power, Solar Energy, Energy Efficiency

The information and views expressed in this blog post are solely those of the author and not necessarily those of RenewableEnergyWorld.com or the companies that advertise on this Web site and other publications. This blog was posted directly by the author and was not reviewed for accuracy, spelling or grammar.

46 Reader Comments

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steve-poppitz-157135

May 28, 2011

won't it be beautiful when the big oil co. agree that it doesn't make much sense to go miles deep to get dinosaur sweat so we can move it across the globe and burn ineffectively and spew sh--
into the atmosphere ?

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steve-poppitz-157135

May 28, 2011

by the way...when renewables take the lead in power production
there will be MUCH LESS NEED for a Ginormous Military Machine.We won't be attacking countries like Iraq,Iran,Libya,etc.etc.to 'keep the oil flowing' Besides, all the rest of the significant military spenders on the planet happen to be our allies.Anyone still afraid of Viet Nam ? How about Grenada?Yugoslavia?(oh yeah they are gone)

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Bob_Wallace

May 28, 2011

RE: your figure. It's too small to read without zooming in a lot. And when I did I see that it hasn't been updated since 2005. We have six years of additional data now.

According to Solarbuzz installed industrial solar is already at 16 cents per kWh in sunny locations.

http://solarbuzz.com/facts-and-figures/retail-price-environment/solar-electricity-prices

In addition we are experiencing a rapid price drop this year. As much as 20% for panels so far with predictions of a 30% annual drop as supply exceeds demand once more.

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Anumakonda

May 29, 2011

Good post. Solar energy can't be equal to Fossil fuels in the near future.

Dr.A.Jagadeesh Nellore(AP),India

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steve-poppitz-157135

May 29, 2011

I think we should all thank Germany and China for that price drop. Early adaptors always help the masses that are late to the game. The most staggering statistic I've heard is that Germany has 74% of all the PV in the world. That's alot of panels.And did you notice that when the rest of Europe lined up at Libyas doorstep, they passed.

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John-Bronson

May 29, 2011

Solar is already cheaper than the grid in Hawaii, which charges 25 cents/kwh for residential use. Yet it's still far from the "dominant" energy source. There are many reasons why people won't switch to solar. The reality is that it's going to take several decades to transition away from fossil fuels. PV will be the winner in the end though, IMO.

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steve-poppitz-157135

May 29, 2011

dear Anonymous, I stand corrected. I can't tell you where I got the 74% number.REGUARDLESS, 41% of the worlds PV for a cloudy little country of about 90M people. WOW ! Now there is a group of socialists that are planning on post peak oil.And they don't much care for nukes.Now we capitalists here in the ole USA follow our leaders at Exxon,Conoco Phillips,Duke Energy, etc. etc. right past peak oil to the edge of financial collapse and wonder when there is a paradigm shift to occur here?

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peterlynch

May 30, 2011

I am not sure what everyone means by cross over, but as long as you are using the grid as your backup - which most of us are then there is no crossover. What is needed is two fold:

1. A significant cost break through in PV costs that MUST include all three of the critical areas: Factory CapEx, Cost per watt of manufacturing and much higher efficiency (without concentration)to enable a significant drop in the balance of system (BOS) costs.

2. A major breakthrough in storage so that the grid is NOT the backup for PV. If PV is to become truly distributed and the energy is to be used MOST efficiently (at the source) then on site cost effective storage will be needed.

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steve-poppitz-157135

May 30, 2011

Dear peterlynch,
Crossover = when the energy less-dense renewables get cheaper than digging up fossil fuels,transporting fossil fuels, processing fossil fuels, cleaning up after fossil fuels and all the pollution that they cause, etc. That the great CROSSOVER.We probably are there already, but we don't keep track of the "real cost" of fossil fuels.When we do the great CROSSOVER, even Exxon will be more into renewables....I can almost smell better air already.

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steve-poppitz-157135

May 30, 2011

you know, I just reread the above article and was surprized not to read the term PEAK OIL or PEAK COAL. add to the above article that we now go miles under the ocean to get our new oil, and steam clean the oil out of tar-sands...they've gotta be cheap, don't ya think? or that the coal we burn is getting deeper and of less quality, not to mention THERE WILL BE TOUGHER STANDARDS ON BURNING COAL and you've got to think we are closer to the CROSSOVER than the 3-5 years that is speculated.

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peterlynch

May 30, 2011

Thanks Steve I really did know what crossover is being defined as, my point is that I do not agree that there can be crossover until the storage problem is fixed. That is the only way to have a fully distributed system, I assume a grid will always ( at least in the near future ) be necessary but has to get a lot smarter and much more efficient.

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steve-poppitz-157135

May 30, 2011

Until we find the Holy Grail of battery storage, and I think we will. We can pump water up hill during periods of energy collection, and run it down thru turbines when we need it. Or pump air into giant balloons. Or lift great weights. Nothing very sophisticated. But change current energy into potential energy.Let's all hope those guys at BMW and Siemans make the break thru on NickleAir batteries. Even more abundant than lithium,and supposedly cheap.

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Bob_Wallace

May 30, 2011

If we were to acknowledge the hidden costs of coal, the extra tax dollars and health insurance premiums we pay because of the damage caused by burning coal, then solar is already cheaper.

A recent study out of Harvard calculated the very high cost of burning coal for electricity...

"Dr. Epstein stated that the average annual hidden cost of coal power is $345 billion but that it could potentially range from $175 billion to $523 billion. If the coal industry were to take these costs into account it would raise the cost of producing 1 KwH of electricity by $0.18 which would take coal from being the cheapest source of electricity to the most expensive."

http://greenharbor.org/2011/02/17/harvard-university-study-discusses-coal-power-generations-hidden-costs/

If we want to compare the cost of creating new generation PV is probably cheaper than new coal generation. New coal and new nuclear would make for very expensive electricity. Even before we add in the hidden costs of coal and the subsidies nuclear receives.

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gary-tulie-73445

May 31, 2011

There are three major components to installed photovoltaic array cost, panels, hardware balance of systems, and labour (I include here planning and code compliance).

As an indication of where we are now

First Solar declared manufacturing costs of $0.75 per watt in the final quarter of 2010, and have been steadily working to reduce costs and boost efficiency since. This indicates that it would be viable for them to supply large orders at $1 per watt.

I can get BOS components in the UK for larger systems at around $0.60 per watt, or nearer $0.40 from China

Total hardware cost therefore starts at around $1.50 per watt for developers of large photovoltaic arrays.

In the UK labour costs for a 1 MW installation are likely to be of the order of $0.40 per watt, or in China, India, or the sun belt countries of Africa nearer to $0.10 per watt to which must be added planning and compliance costs.

I estimate that a large company using thin film technologies can install large systems at an installed cost starting at around $2.00 per watt in developed countries, and possibly as little as $1.60 per watt in developing countries.

In Southern Europe, the cost price of Solar power with this installation cost would probably be of the order of $0.11 to $0.12 per kWh, and in the sun belt countries of North Africa may be as low as $0.08 per kWh in the best locations.

I recognise that most systems cost more than this to install, however it appears to me that the most competitive installation companies are already achieving grid parity for domestic and commercial clients and approaching grid parity for large industrial clients in sunny locations with high electricity tariffs.

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steve-poppitz-157135

May 31, 2011

Dear Gary Tulie, Installation costs have to occur BUT building permit fees could be waived.The state of Vermont just enacted a moretoreum of the fees associated with solar systems, saving significant $ for each new installation. I plan to propose this idea to my city council soon. If every local gov't would cut a few % of the cost....think about it.Not quite as good as Germany's feed-in-tariffs , but not bad. One baby step closer to the GREAT CROSSOVER.

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chrisewell

May 31, 2011

The article is a great post – thanks to Mr. Blankenhorn.

I agree, crossover certainly removes a primary barrier to solar PV, it's an big step toward a stronger PV future, and the many important details of cost decreases will get it there. However I think there are several more barriers after crossover that will prevent it. I question the assumption that crossover will translate to solar PV's larger use. Look at Hawaii.

As the state with the highest retail cost for electricity in the US, Hawaii is one of the few places where the total cost of electricity from solar PV is less than that of total cost for utility-scale electricity (Hawaii Clean Energy Initiative website, Renewable Energy from the Sun, http://www.hawaiicleanenergyinitiative.org/sun/index.html). But PV is less than 1% of its electric mix (in 2008 it made up less than 1/20th of 1% of the mix. See the US EIA, Hawaii, Renewable Energy Summary http://www.eia.doe.gov/cneaf/solar.renewables/page/state_profiles/hawaii.html)

Additional barriers beyond "crossover" costs are:
- high upfront capital costs of the different PV technologies (even if the total cost/kWh is cheaper this upfront cost kills the ability to install a system),
- lack of finance options for those high costs, and
- lock-in to a grid system that already provides electricity to almost all end-users
These will continue to make solar PV a difficult investment there even though locally it has already reached a crossover point.

A more universal crossover will be a milestone, but how are we going to get past these other barriers? There are a number of policy options we should be looking at that would prep solar PV to best take advantage of the "day of crossover." Will we be ready?

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gary-tulie-73445

May 31, 2011

One system proposed in the UK and due for implementation next year is to require the energy companies to loan funds for energy efficiency / renewable energy measures against future energy bills over a 20 year period as a charge against the house and transferable to any new owner. This will allow the customer to repay the loan out of savings, and ensure that any viable domestic energy saving / renewable option is fund-able. The Government is now preparing the required legislation.

An alternative is to have the mortgage companies adjust their affordability of loan criteria to take into account the ongoing running costs of a home. This is already happening to an extent with some lenders in the UK who offer a slightly higher earnings multiple to borrowers buying an energy efficient house or one with renewable energy features to recognise its lower bills.

Note:- All homes sold in the UK come with an energy performance certificate enabling lenders to recognise energy efficient homes in order to make this adjustment to their loan criteria.

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crazyhorse

May 31, 2011

Back in the day when learned scholars debated how many angels could dance upon the head of a pin they at least agreed upon what a pin was. In the modern day search for the holy grail of "crossover" there is a complete absence of a meaningful definition of what that might be.

"Oilers" pretend that the supply of oil is infinite, the subsidies they receive are not part of costs, and that CO2 is a nice gas that helps plants to grow. The cost of maintaining an imperial army with a budget as large as the entire rest of the world to keep supply lines open is ignored,as is the cost of melting polar icecaps, heat waves, and premature deaths.

"Coalers" pretend that the price they sell electricity from 40-year-old unregulated and fully amotorized pulverized coal plants is the only valid metric. They spend billions on advertising to convince the world that science is a hoax perpetuated by people wearing Birkenstocks. When that doesn't work they just buy Senators.

"Coneheads" pretend that nuclear power is safe, limitless and would be too cheap to meter if the free market would just be left to do its magic. No private insurance company is willing to insure a plant for the life of the nuclear material it contains for the simple reason that they do not have infinite resources. If the "magic" of the free market were were not suppressed by insurance liability caps, there would be no commercial nuclear power at any price.

"Sunbeams" spout numbers about installed capacity as if it represents delivered energy. The earth does revolve around the sun and clouds do form. In a climate like Germany where nearly half the world's PV has been installed, the annualized hourly output of PV is far closer to 20% than the assumption of 100% that is buried in glowing reports about new capacity.

Until environmental,health,and military costs are fully included and realistic life cycle production figures incorporated,any discussion about "crossover" to renewable energy is meaningless.

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peterlynch

May 31, 2011

I repeat - there is no crossover without on site storage. If there is no storage, then you have to count the cost of the grid as your backup. I have had a residential PV system for years - and last year 2010 I generated 12 KWHRs MORE than I used- but I still had a utility bill that I paid however small. At this time there is no cost effective backup is out there that I know - so I am dependent on the grid as backup and that is part of what it costs - simple as that....if you need the grid then theoretically you have NOT crossed over ...

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mitch3

May 31, 2011

Here's something to think about; the WECC's transmission scenario planning project has listed those "worlds" possible. One of the worlds is "islanded" energy production where distributed generation is the norm, however that isn't a perfect world due in part because there are numerous areas where alternative renewable energies aren't possible resulting in the "sharing need" for the nation's grid.Many states have poor solar, some have poor or untimely wind events at the same time other areas abound with these renewable resources. The question is does America divide into islanded energy or do we work toward a national grid? As peterlynch above mentioned without storage one remains connected to the grid, at least until there is a cheap source for storage or people decide they must depend on each other and buy into a neighborhood storage plant. That being said nimbyism is rampant these days and folks aren't likely to realize very soon that compromise is needed if the nation is to be successful in lowering Ghg emissions.
There are a lot of societal issues to over come before a crossover is possible.

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steve-poppitz-157135

May 31, 2011

Dear mitch3, In my humble opinion, NREL should lead the nation into regional areas of Renewable Resources (RR) The southwest should lead the charge on Solar Thermal. The NW should lead on Geothermal. The Midwsest on OnShore Wind. The Mid-Atlantic on Off Shore Wind. The SE on Pellet Fuel.(they already have the biggest pellet factory in the world, and they sell their pellets in Europe...as if we don't need them?). The PV field is already running everywhere so maybe not regionalize it, so this and the biggy THE SMART GRID need a lot of attention. And maybe you touched on the biggest thing 'societal issues'. We need the educate the masses as to what the CROSSOVER and a smart grid could mean to us.

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mitch3

May 31, 2011

I agree wholeheartedly; in our quest to build closed loop pumped storage and doing the economic interconnection studies we are finding that the utilities will take a hard hit in their asset base which in our case is gas fired generation. One project in the NW while helping integrate wind to avoid curtailment we will cost the utilities around 24m dollars per year in lost generation however the wind folks will be able to keep generating. We face numerous hurtles because of the opposition, not from environmental groups, not from government but from the big boys with all the gas. We are moving forward.

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phil-manke-79191

May 31, 2011

The "Smart Grid" will happen, perforce, because the Utes will see it is in their best interests. It will happen as slowly or as quickly as RE sources are developed and implemented. Distributed RE will be employed as it becomes cost feasable to the majority, so, not very quickly. Yet more people are waking up to the investment payback that begins as soon as the hardware is installed. Can the stock market guarantee that? Effiency? How about 100%! Everything you get is cost free, and insures cleaner air and water.. How else would you care to look at it? I'm looking for a property/health insurance company that offers premium deductions for homeowners with RE installations.
The non-hidden health costs of burn tec for fuel and energy do not portray the entire picture either. The non-hidden costs of the military/ industrial/ congressonal complex machinery are yet to be recognized and dealt with.

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John-Bronson

May 31, 2011

chrisewell wrote:

'Additional barriers beyond 'crossover' costs are:
- high upfront capital costs of the different PV technologies (even if the total cost/kWh is cheaper this upfront cost kills the ability to install a system),
- lack of finance options for those high costs, and
- lock-in to a grid system that already provides electricity to almost all end-users
These will continue to make solar PV a difficult investment there even though locally it has already reached a crossover point.'

I disagree. The existing grid benefits PV, by allowing net metering without the expense of storage batteries. The high upfront cost issue is solved with financing. Financing is readily available. Permitting is free and can be done online.

The big problem with installing PV on structures is that most occupants lease the properties. The landlord doesn't care what the tenant pays for electricity. And the tenant does not want to invest money into property that they do not own.

The problem with solar farms is the high retail cost of land. A potential investor would lose money on a solar farm if they had to pay retail for the land to put it on. For traditional owners of large tracts of land, there is community opposition to using AG land for solar farms, and to wind farms in general.

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Longwatcher

May 31, 2011

Crossover to me means when the price of solar equals the price of fossil fuels used in generating electricity.

However, I don't think cross-over means we stop using fossil fuels. It does mean we reduce using fossil fuels to those things that renewable energy can't do well. There will be a second crossover point when energy storage system costs combined with renewable make electricity from renewable energy viable 24 hours/day 365+days/year for those things it can be used for, but still there will be a need for fossil fuels (or biofuel equivalent).

It is a milestone, when the technology/costs have progressed to the point where solar/wind make up as much as they reasonably can be expected to without cost effective energy storage for null times. The second milestone is when renewable energy and energy storage have replaced all fossil fuels for electrical generation for both day and night. and a final milestone is when the full range of transportation and backup systems can run off clean renewable energy (with lesser milestones for each category of transportation).

I happen to be one of those that would prefer using existing rooftops to minimize the long term benefits of solar PV, but as long as the total area impacted is reduced, I am okay with large commercial solar arrays/plants. It is got to be better then coal/oil/gas fumes spewing into the atmosphere.

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Ventum_Orbis

June 1, 2011

Germany is to be congratulated in taking the lead in many ways. They recently committed through Angela Merkel's statement to completely phase out all nuclear energy by 2022. In addition to their rapid adoption of solar, their federal investment in offshore wind and support for their own indigenous manufacturing base is markedly better than in the UK, where manufacture of turbines and port infrastructure is slow off the mark and poorly supported. Germany has a relatively small strip of the North Sea to place it's wind projects into which is jam-packed full of plots. The UK has much, much more space out at sea and more wind but is sluggish and patchy in terms of lacklustre government support. This is remarkable and saddening considering the UK's North Sea oil and gas industry experience which should have had it with a big advantage. Most offshore wind is being built by Danish and German contractors at present. UK solar advancement is pretty puny. Expect East coast US offshore wind to storm ahead in a year or two if Cape Wind can be pulled off.

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gerry-wolff-45432

June 1, 2011

A report last year by Bloomberg Renewable Energy Finance showed that worldwide subsidies for fossil fuels are 12 times the subsidies given to renewables.

Also, fossil fuel generators are still using the atmosphere as a free trash can for their CO2 emissions. This has to stop.

With those two problems fixed, we are probably already past the crossover.

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MacAfrican

June 1, 2011

Some comments:

Cross over / grid-parity / LCOE
As members said, generation cost of coal/nuclear/gas is entirely irrelevant for commercial & residential rooftop. Reality:
* the utilities will always charge me as much as they can regardless of their generation cost because I'm a captive.
* I pay retail, which in Jan 2011 was 11.6c/kwh US-wide but ranged from 7.3 to 31. Figure in peak time-of-day rates, that e.g CA rates are peak exactly when the sun shines best, and we should be comparing rooftop LCOE to more like 40c/kwh.
* LCOE is a somewhat dubious calculation. How do you reflect in LCOE that a $10,000 rooftop residential installation is PROVEN to add about the same to resale value of the house? That blows PV's supposed achilles heel of high initial cost and with it the lifetime cost of capital straight out the spreadsheet.
* retail cost in US increased from 8.2 to 11.6 in ten years = 40%. Can anybody tell me that it will increase less the next ten years and the ten years after, given cost of clean coal tech and even without a carbon sequestration obligation? It will probably go 25c/kwh by 2020 meaning peak rates in 2020 more like $1/w.
* I know for an absolute fact of certainty what a PV rooftop LCOE is - almost no forecast variance. What will coal cost in 2020?

Storage
Yes, PV doesn't work at night without storage. Batteries will go long way, but combo grid+PV is better than grid-only!

Module cost ex factory:
* FirstSolar has PRODUCTION cost of 0.75/w, very different thing from TOTAL cost. With CdTe efficiency ceilings & cost cut floors on glass and Te, I don't see that FSLR will be able to sell modules at less than $1.30 anytime soon (and make money)
* FirstSolar is by miles most likely to be able to reach $1.30 per watt ex-factory. No Si PV technology can get there without massive cost-side subsidies on especially ingot energy input cost. So 90% of global PV semicon capacity cannot get to $1.30 in normal manner anytime soon.

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GeraldR

June 1, 2011

'Cross-over' or parity arguments are always very wooley. If you're comparing cost of generation, that is most applicable to central power station applications. If you're comparing price of electricity, that is most applicable to local generation. But one has also got to state the terms: are you working in absolute dollars or constant dollars? If the latter, what year is the baseline? I can only assume that the graph works in something else as we know that the average cost and price of electricity is going up regardless - i.e. is not constant with time: electricity is outpacing inflation by approximately 3 points so in constant dollars it should double every 24 years (on the other hand, the cost of renewables is decreasing even more rapidly when stated in constant dollars). I'd also take issue with comparison to pricing where the usual thing is to use the base rate ignoring taxes, delivery fees, reserve fund contributions and other adders which would lead to a more correct price comparison when considering local generation as a means of curtailing the cost of purchased power.

The other consistent and big error is the complete ignoring of time domain in comparisons. It would be entirely possible to erect a solar farm and run it to the end of its useful life in the same time that it takes to bring an economically scaled nuclear power generator on line. Time is money,especially when you're paying interest on capex. It is particularly misleading to compare the cost of capacity using overnight capital cost to arrive at a $/W number while ignoring time. A few decades of additional accrued interest plus inflation adds up to a lot.

In Ontario, the latest bid for nuclear power was close to 10 $/W in current dollars (if Ontario chose not to underwrite liability and cost over-runs). I'd guess that financing could be a significant cost driver.

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MacAfrican

June 1, 2011

Precisely Gerald. Work it what capital cost element of LCOE is when more than 100% of initial outlay is returned by way of increased residential resale value. Potentially halves LCOE. The terminal value of a coal plant is negative because of rehabilitation cost...

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SmallWorldTrader

June 1, 2011

Question? what happened to simple 'checkbook economics'? everyone should agree on the definition of Capex. What does it cost to build a system? (permits, land, equipment, labor, etc... in today's dollars). Over its usable life, how many kWh will it produce. divide the Cost/kwH and that is your price. No fancy present value, etc... Coal, Geothermal, Nuclear, Natural Gas, Wind, Solar, Biomass.
What does it cost to operate each system/kWh? raw materials, maintenance, repair, labor, grid connection, etc...
Add the Cost to build the system/kWh with the Cost to Operate/kWh. That is the number.
Line them up on a simple Excel spreadsheet and you will see true 'Checkbook Economics'.
It is only then, that you can look at the value of carbon reduction, incentives, tax benefits, etc...
Crossover occurs when You have the lowest dollar amount based on simple Checkbook Economics.
Can someone tell me where to find these numbers:
The true cost to build each system/kWh
The true operating cost/kWh
I just need somewhere to begin.
Tks.

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GeraldR

June 2, 2011

SmallWorldTrader: you can't generally make a complex problem simple. To get a decently accurate picture you can chart cash flows on a time line over the lifetime of a project and bring everything back to net present value. Residential systems are somewhat simpler to do because you don't have access to depreciation and other tax mechanisms available to commercial operators and you probably don't incur land costs, infrastructure development costs and possibly even tax assessments as well as maintenance labor cost. Utility scale operations have all kinds of extra costs starting with land acquisition, infrastructure improvements and so on. Also, private cost of borrowing is pretty much what you'd guess, however, for a commercial operation you've got to determine an appropriate WACC. The problem I found with modeling solar is that the timelines are so short (not including the permitting process) that the typical annualized tabulation is insufficiently precise.
Good data is hard to find. Generally, published cost of capacity is a contract price - it does not represent actual cost as most large projects experience cost escalation due to over-runs and inflation and raw capex is not the actual cost unless you can finance a project with free money.
Local conditions, particularly quality of resource, tax structures and available financing are very important data points. Digging in to some jurisdictions where solar is suprisingly successful, you find that taxation of energy is a very important factor, sometimes even a dominant cost. Also, compliance and service costs are localized and important. The US is a prime example of how very large regulatory compliance costs and high utility servicing charges can skew the cost model away from renewable energy.
Again, utility rates are only a basis. Having done several models for factories where electricity cost is a major factor, I don't know of any location in the US where one could purchase electricity at 6-8 cents / kWh net.

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MacAfrican

June 2, 2011

Handy place to look at residential, commercial, industrial average retail electricity for various states:
http://www.eia.gov/cneaf/electricity/epm/table5_6_a.html
The rest of EPM at EIA.gov has other useful data too

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GeraldR

June 2, 2011

Mac: bin there, done that. Retail price is just a basis. Then add local improvement fees, nuke fees, state and local sales taxes, over-consumption adders (possibly on a ratcheting scheme), energy taxes and so on. Find a place where one could get a purchase agreement for 50 MWh per year for 20 years at 6 cents per kWh, all costs in, in inflation adjusted dollars with no time of use constraints?
One issue with EIA numbers is that they're always a bit optimistic based on how they compute the average price and their projections for price escalation are typically low. In any case, one can't generally apply a state-wide number as county and municipal tax structures are often very location dependent as are producer and LDU rate structures and payment terms. You're dealing with a huge patchwork quilt of pricing mechanisms - that can shift in 1/2 a mile - one probably can't fault EIA for not tracking this.
A general problem that applies globaly is that agencies that report pricing generally regard most forms of taxation and regulatory fees as external factors even though the end user ends up paying these costs as part of the purchase of electricity.

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SmallWorldTrader

June 2, 2011

Clee, GeraldR and MacAfrican;
thanks for the suggestions. Perhaps if I pose my question a little different it will help everyone reading. I teach a business school class for graduates. Currently I have a team trying to evaluate an investment into 'systems' for an investment company. Their assignment is to evaluate energy system technologies as an investment for to commit to for ten years. They have to evaluate the alternatives based on 'real' dollar costs to make their choice. 'Real' dollars means net of tax incentives or any outside cost adjustments. If you could build one of each line up next to each other in the same local, they need to establish a 'hard dollars' cost installed/per kWh. With that in hand, they must next establish a cost to operate/per kWh. Combined, that will establish the 'checkbook economics' cost per kWh from which they will determine the best investment.
We have reviewed as a class a good number of the outside effectors like taxes, fees, etc... but can not bring this into their equation until after they establish "Checkbook Economic Prices/Kwh" this is a very interesting experience for the students because they are doing the project for a real investment company that is planning their energy investment strategy in real time and the students report, (with some editing from myself), will weigh heavily on their decision.
Thanks,
Small World Traders

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gary-tulie-73445

June 3, 2011

Don't forget the real value of power which varies with the time of day. A kWh generated in the early afternoon on a hot summer's day is worth significantly more than a kWh generated 12 hours later when most air conditioning is off or not working as hard, offices are generally closed and most lights are off.

For this reason, the average value of a kWh generated by solar is a little higher than a kWh generated by wind as the generation pattern more closely approaches the demand pattern.

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GeraldR

June 3, 2011

SmallWorldTrader: I get what you're doing. 10 years would seem to exclude some options all together. For a number of technologies, 3 to 10 years for advanced planning, environmental assessments, etc. is typical. For some of them, time from first spade in the ground to operation is decades. Typical nameplate operating lifetimes are 25 to 60 years. Of course, if you use NPV, cash flows many years out are vanishingly small, so to some extent you can ignore them. On the other hand, this leads to nuclear power plants at end of life with an $850M+ decomissioning cost and $340M set aside that looked economic when viewed from 50 years back.

If you are looking at this from a commercial venture point of view, I would be interested in what numbers for COB and WACC typical investors are looking at.

Also, I would be careful not to over-value capital cost although that frequently seems to be more important in people's minds than total cost of ownership. I'd also like to see what they come up with for modelling revenue losses due to utilization/curtailment for various types of generation.

I guess your students can learn from this exercise how much tax structures, rate structures and other policy mechanisms influence the 'true' cost of production. Some claim that project financing is the real science behind energy projects. Perhaps they could also look at the cost sensitivity of permitting - for example 7 years versus 4 years.

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MacAfrican

June 3, 2011

The norm when people do LCOE calculations is a time series of all the input costs, adding O&M costs + equity / debt as you go, + annual input costs as you go, - benefits (if any) for things like tax credits and adjusting ± for an end of life negative or positive. Take that number and divide by total output to get a cost per MWh.

The big holes in LCOE calculations ares:
* reflecting increased resale value of the rooftop PV property - in other words the startup costs are not actually really costs - certainly unlike with a coal plant that will cost ANOTHER heap to rehab.
* reflecting annual costs. They are firstly immaterial and secondly certain in the case of an RE like PV. It's tiny % of capex for PV (less than 1%), more for wind and a lot more for anything that involves pressure vessels that run generators (more than 7%) - e.g a coal plant or molten salt solar. Try and imagine what the asset & liability insurance cost as % of capex is for a rooftop PV versus coal-fired plant...
* reflecting variable costs. I know with absolute certainty what the variable cost of rooftop PV is, the beta on coal futures is huge.
* reflecting unknown future costs. It's more likely that legislature will add a credit for PV than the probability of legislature adding a punitive tax on coal!
* reflecting output = total MWh. People like to say PV is fickle - doesn't produce when the sun don't shine, what load factor to use, etc. So you build a 1000MW coal plant nominal capacity. How many hours per year is there sellable demand in 2020? Total coal generation capacity is probably double the draw, so don't come and tell me that your 1000MW coal plant total timeseries cost gets divided by 1000mw * 8760 hrs per year * 20 years =175 million MWh...

I could probably do a spreadsheet, with valid or defensible assumptions, that shows rooftop PV having an LCOE of 5c/kwh if I tried hard enough.

Like somebody said : you get lies, then you get damned lies, then you get statistics

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steve-poppitz-157135

June 3, 2011

So glad to see that this topic got such response.

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SmallWorldTrader

June 3, 2011

Students are a lot smarter today then thirty years ago when I was in school. I have been sharing with them all of your postings. they refer to you as "the TA's". Let me share an email I just received:
"The first time we met as a group you made a big deal out of 'working in real time' and 'how the difference between Under-graduate and Graduate work was that in Under-graduate, you teach students to find the right answer. You teach Graduate students how to find the best answer in the amount of time available."
"We recognize there are a million variables that can go into an evaluation of any kind of investment and specifically with a topic that is as hot as 'energy' and 'renewable energy, but we have to start somewhere. We can write an encyclopedia of footnotes, assumptions, etc... once we have some numbers to work with."
"We are beginning with establishing benchmark LEC's, (Levelized Energy Costs), defining that as the price at which electricity must be generated from a specific source to break even. It is an economic assessment of the cost of the energy-generating system including all the costs over its lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital and should be very useful in calculating the costs of generation from different sources. Here is where we have begun:"
"Breakdown of Cost to Production (in KWh) equals:
Cost to Construct + Fixed O&M + Variable O&M (including fuel) + Transmission Investment."
"If you will approve this template, we can begin plugging in our numbers, (with a zillion footnotes)and then your TA's can tell us why it is different in San Diego vs. Omaha, but like you said, 'we have to start somewhere'."
Their technologies for comparison are; Coal, Natural Gas, Crude Oil, Nuclear, Hydropower, Solar, Wind, Geothermal and Biomass. To establish a starting point, each of these would be constructed on an imaginary island where all of the variables are set on 'medium'.
I will keep you posted.

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renewablemike

June 4, 2011

Thanks to Dana Blankenhorn for starting an interesting discussion & post. 2 comments lead my conviction that here in Ireland (as the location factors - solar irradiance - energy cost - taxation etc.) Solar thermal has better cross over or 'pay back' than PV.

"the utilities will always charge me as much as they can regardless of their generation cost because I'm a captive."
- MacAfrican
" A major breakthrough in storage so that the grid is NOT the backup for PV. If PV is to become truly distributed and the energy is to be used MOST efficiently (at the source) then on site cost effective storage will be needed."
- peterlynch
PV has too many 'lynch pins' based in cost, storage and how easy your utility company make it to smart meter or sell into the grid. I'm looking at it although for all kinds of off grid applications and for the customer that arrives looking for a PV panel. These technologies must (RE in general) must be simplified for the end user & retro fit solutions made up to suit the home or businesses requirement as off the shelf as possible - and with quick and simple payback or cross over math available. The end user is becoming more & more energy aware and a new generation coming down the line take words and actions like 'recycle','renewable','eco','green' as part of their vocab, ethos, & demand as consumers.
If a home lowers energy use age through careful choice of energy efficient appliances, lighting & other electrical saving timers etc. and it is well insulated its a good low cost start in the right direction. If a solar thermal investment of a couple of metre's of panel provides free hot water for 50 - 70% of the year its a draw in the final half of the game. Fossil fuel cost & supply will put the winning score for RE. I write a blog which seeks to offer simplification to end users of RE and I always welcome comment to assist in converting energy users and offer simple 'plain English' advice: http://www.thesolarpanelpeople.com/greentimes/

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AlexEscada

June 8, 2011

Solar energy is still very expensive. I don't think Germany is a good example of solar being successful.
At 2010 prices the installed Germany capacity costs more than 80000 million dollars and the energy produced, with a miserable less than 10% capacity factor, is about half of that produced by Fukushima's reactors... when they were working.
I know there are sunny places in the World, and that Germany is not one of them, but still...

P.S. I don't think nuclear power is interesting by the way, actually in many places it's an economical disaster.

And even in sunny places solar PV power is far from attractive IMHO, unless in very specific places/conditions.

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steve-poppitz-157135

June 8, 2011

Dear Alex, What a strange example you chose as more successful than the German solar success ? How many billions do you think it will take to clean up Fukushima? And the surrounding 20 miles or so? And how many health problems will occur to people in the region? But to close, you are right Germany isn't very sunny. Can you Imagine if SoCal, Az,NMex,Nv,Utah & Colo. made similar commitments to solar 10 years ago?

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MacAfrican

June 8, 2011

Alex, which form of energy is cheap in your books?

W'be especially keen to hear what energy you could self-generate at comparable cost to rooftop PV? No, a diesel generator in the basement won't work in my neighborhood. And that btw was the closest you'll get.

Re Germany, they're stupid example with 2.2 SSH per day. Motivation was never RE grid, it was job creation, which worked since they have around 400,000 people working in PV. The gazillions in subsidies to oil and coal have achieved far less.

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AlexEscada

June 9, 2011

The solution for energy is a mix, it will depend of the place, the social rules, the geography, ... obviously the solar PV energy is interesting in some places but it will take many years (if ever) to become a seriously replacement for other sources.
Doing the math:
Solar energy in Germany accounts for about 2% (0.6% in 2008) and costs at current prices $80000 millions. Maybe it was a great investment for creating jobs but not for producing energy.
Germany is one of the richest countries in the World, it's not easy for others to achieve the same level of investment in something so unproductive.
To those who believe solar energy is the future, my thumbs-up... but I think otherwise.... Time will tell who have the reason... and I want to be wrong on this one.

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renewablemike

June 9, 2011

"At 2010 prices the installed Germany capacity costs more than 80000 million dollars and the energy produced, with a miserable less than 10% capacity factor" -AlexEscada
- climatically Germany isn't the sunny place you'd expect that level of investment, but sun light & peak season return must have played a factor in their gov. investment strategy - they're no fools the Germans, and bound by carbon emission goals and penalties coming down the line they're obviously working towards a goal that percentages play a factor and 10% is a starting point.
Is that figure PV only - residential + PV commercial & heliostat power plants, or does it include solar thermal power residential & commercial ?
Grid feedback PV power or - smart homes with PV creation and use at source are factors.
As we here in Ireland have relative parity with the Germans on IR figures
- Northern & mid Germany are in the range of 1000 - 1200 Kwh/m2 and southern at 1200 - 1400 Kwh/m2 ( optimally inclined, south orientated PV modules)
Not exciting figures , but free abundant energy that has added bonus factors of increasing your house value and BER (building energy rating) which in turn increases the chance to sell your house. Running costs are increasingly taken into account by potential buyers of a home these days and fossil fuel increases and shortages will only serve to prioritise this factor in future. I still believe that solar thermal gives the homeowner the most benefit and quickest payback on investment in a retro fit situation & many new builds also.
NB - Solar IR figures are taken from 2006 data, has this increased with global warming and depletion of Ozone since then ? I'm unsure where nuclear fits into the argument, I'd rather see large scale Hydrogen power plants (initial catastrophe not withstanding -less fallout in the aftermath). I know from my brother living in France that solar has been heavily subsidised. French longitude a factor & IR figures
Mike

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About: Dana Blankenhorn has covered business and technology since 1978. He covered the Houston oil boom of the 1970s, began making his living online in 1985, and launc... more »