Only very large renewable energy projects are able to obtain federal loan guarantees. The only incentives generally available for medium and smaller-scale commercial solar projects are the 30% investment tax credit and accelerated depreciation. (These incentives are, by the way, far less valuable than the incentives available to new nuclear plants, which include a ten-year production tax credit, Price-Anderson risk insurance, accelerated depreciation, federal loan guarantees and others; I wish the LA Times or the New York Times would do a follow up looking at the incentives for nuclear plants, and I’ve urged both papers to do so, to no avail as of yet).
Broader Pricing Issues for Renewables
Now let’s look at the cost trends in solar over the last couple of years, to get an idea of the real cost situation and where we’re likely to go in the future. The Solar Energy Industries Association (SEIA) puts out a quarterly report on cost and installation trends in the US. Here’s their latest cost chart, through the second quarter of 2012, showing a remarkable 45-50% drop in cost for utility-scale solar (the segment BrightSource belongs in, as well as the community scale solar segment) since the start of 2010:
Figure 1. Cost of solar in the US (source: SEIA Q2 market report).
What about the longer-term trend? Well, there is a Moore’s Law of renewable energy taking place, where solar panel prices drop about 10% for every doubling of global installed capacity. The long-term trend is clear: solar prices are falling and will keep on falling as we install more and more megawatts.
Wind power price declines have not been as consistent, with the lowest prices achieved in 2003 in the US, then rising far higher and since coming down again. A complicating factor for wind turbines is that their efficiency has improved considerably in recent years, allowing for higher prices per watt but declining prices per watt-hour (due to the increased efficiency). See figure 2 for the long-term trends for wind and solar.
Figure 2. Long-term price trend for solar and wind (source: UN IPCC).
The California Energy Commission also issues a report every couple of years that compares the levelized cost of energy across different technologies. The levelized cost is the average cost of power produced (cents per kilowatt-hour or c/kWh) over the expected lifetime of the facility, allowing an apples to apples comparison across technologies. The most recent report from early 2010 shows that all renewables except solar are as cheap or cheaper than natural gas power plants. Since 2010, natural gas costs and solar costs have dropped substantially (as Figure 1 shows, they’ve dropped by half since 2010), however, the gap has closed remarkably for solar power in general, such that many contracts like the BrightSource contract are in fact coming in below the cost of power from a new natural gas power plant, which are either “simple cycle” or “combined cycle” plants in the chart below.
Figure 3. CEC comparison of levelized cost of different technologies.
Clearly, establishing what is “cost-effective” or not when it comes to renewables is not a simple matter. However, what is simple and clear is this: fossil fuel prices are only going to go up in the long-term. And renewable energy prices are only going to go down. It is that simple. And as more far-sighted jurisdictions like California, Germany, Portugal, etc., promote renewables with wise policy decisions, they help enhance the existing very favorable pricing trends for renewables. Germany’s long-term feed-in tariff is responsible almost singlehandedly for the dramatic price declines in solar power because they brought the global solar power market to scale.
What California began in the 1980s, with its own feed-in tariff under the federal PURPA law, Germany improved and expanded. California is now starting to regain its leadership in this space, after being in the doldrums for about twenty years. And it is not helpful for the state’s paper of record to be running hit pieces on renewable energy during what is still a relatively fragile renewable energy market development phase.
Renewable energy projects face many hurdles in today’s market in California and elsewhere, including: 1) hideously complex and expensive interconnection procedures; 2) very limited number of power purchase agreements; 3) an uncertain incentive environment due to legislative uncertainty; 4) always tenuous permitting procedures, particularly in states like California that have a history of extremely rigorous permitting standards; and 5) an uncertain economic environment more generally.
While I am personally optimistic about our energy future – keep in mind that solar power in the U.S. doubled its installed capacity and is on track to do so again this year – a continuation of the current trend is by no means guaranteed. If we are serious about tackling threats like climate change and peak oil, we’ll need to do everything we can to continue the remarkable growth in renewable energy and energy efficiency for another decade or two. We’ve got a lot of work still to do.