Renewables Are Disruptive to Coal and Gas

by on May 21, 2015 at 9:00 am in Economics, Science | Permalink

Over the last 5 years, the price of new wind power in the US has dropped 58% and the price of new solar power has dropped 78%. That’s the conclusion of investment firm Lazard Capital. The key graph is here (here’s a version with US grid prices marked). Lazard’s full report is here.

Utility-scale solar in the West and Southwest is now at times cheaper than new natural gas plants. Here’s UBS on the most recent record set by solar. (Full UBS solar market flash here.)

We see the latest proposed PPA price for Xcel’s SPS subsidiary by NextEra (NEE) as in NM as setting a new record low for utility-scale solar. [..] The 25-year contracts for the New Mexico projects have levelized costs of $41.55/MWh and $42.08/MWh.

That is 4.155 cents / kwh and 4.21 cents / kwh, respectively. Even after removing the federal solar Investment Tax Credit of 30%, the New Mexico solar deal is priced at 6 cents / kwh. By contrast, new natural gas electricity plants have costs between 6.4 to 9 cents per kwh, according to the EIA.

(Note that the same EIA report from April 2014 expects the lowest price solar power purchases in 2019 to be $91 / MWh, or 9.1 cents / kwh before subsidy. Solar prices are below that today.)

The New Mexico plant is the latest in a string of ever-cheaper solar deals. SEPA’s 2014 solar market snapshot lists other low-cost solar Power Purchase Agreements. (Full report here.)

  • Austin Energy (Texas) signed a PPA for less than $50 per megawatt-hour (MWh) for 150 MW.
  • TVA (Alabama) signed a PPA for $61 per MWh.
  • Salt River Project (Arizona) signed a PPA for roughly $53 per MWh.

Wind prices are also at all-time lows. Here’s Lawrence Berkeley National Laboratory on the declining price of wind power (full report here):

After topping out at nearly $70/MWh in 2009, the average levelized long-term price from wind power sales agreements signed in 2013 fell to around $25/MWh.

After adding in the wind Production Tax Credit, that is still substantially below the price of new coal or natural gas.

Wind and solar compensate for each other’s variability, with solar providing power during the day, and wind primarily at dusk, dawn, and night.

Energy storage is also reaching disruptive prices at utility scale. The Tesla battery is cheap enough to replace natural gas ‘peaker’ plants. And much cheaper energy storage is on the way.

Renewable prices are not static, and generally head only in one direction: Down. Cost reductions are driven primarily by the learning curve. Solar and wind power prices improve reasonably predictably following a power law. Every doubling of cumulative solar production drives module prices down by 20%. Similar phenomena are observed in numerous manufactured goods and industrial activities,  dating back to the Ford Model T. Subsidies are a clumsy policy (I’d prefer a tax on carbon) but they’ve scaled deployment, which in turn has dropped present and future costs.

By the way, the common refrain that solar prices are so low primarily because of Chinese dumping exaggerates the impact of Chinese manufacturing. Solar modules from the US, Japan, and SE Asia are all similar in price to those from China.

Fossil fuel technologies, by contrast to renewables, have a slower learning curve, and also compete with resource depletion curves as deposits are drawn down and new deposits must be found and accessed.  From a 2007 paper by Farmer and Trancik, at the Santa Fe Institute, Dynamics of Technology Development in the Energy Sector :

Fossil fuel energy costs follow a complicated trajectory because they are influenced both by trends relating to resource scarcity and those relating to technology improvement. Technology improvement drives resource costs down, but the finite nature of deposits ultimately drives them up. […] Extrapolations suggest that if these trends continue as they have in the past, the costs of reaching parity between photovoltaics and current electricity prices are on the order of $200 billion

Renewable electricity prices are likely to continue to drop, particularly for solar, which has a faster learning curve and is earlier in its development than wind. The IEA expects utility scale solar prices to average 4 cents per kwh around the world by mid century, and that solar will be the number 1 source of electricity worldwide. (Full report here.)

Bear in mind that the IEA has also underestimated the growth of solar in every projection made over the last decade.

Germany’s Fraunhofer Institute expects solar in southern and central Europe (similar in sunlight to the bulk of the US) to drop below 4 cents per kwh in the next decade, and to reach 2 cents per kwh by mid century. (Their report is here. If you want to understand the trends in solar costs, read this link in particular.)

Analysts at wealth management firm Alliance Bernstein put this drop in prices into a long term context in their infamous “Welcome to the Terrordome” graph, which shows the cost of solar energy plunging from more than 10 times the cost of coal and natural gas to near parity. The full report outlines their reason for invoking terror. The key quote:

At the point where solar is displacing a material share of incremental oil and gas supply, global energy deflation will become inevitable: technology (with a falling cost structure) would be driving prices in the energy space.

They estimate that solar must grow by an order of magnitude, a point they see as a decade away. For oil, it may in fact be further away. Solar and wind are used to create electricity, and today, do not substantially compete with oil. For coal and natural gas, the point may be sooner.

Unless solar, wind, and energy storage innovations suddenly and unexpectedly falter, the technology-based falling cost structure of renewable electricity will eventually outprice fossil fuel electricity across most of the world. The question appears to be less “if” and more “when”.

1 rayward May 21, 2015 at 9:07 am

Uh-oh! He may not be invited back.

2 Andrew Clough May 21, 2015 at 9:13 am

Solar might end up competing with oil extraction at some point if prices continue to go down. Water plus large amounts of electricity get you hydrogen. Hydrogen plus carbon dioxide gets you methane or other hydrocarbons. Right now oil would have to cost over $300 a barrel for this to make sense economically but if easy oil reserves get depleted or solar pushes down the price of electricity (at least during sunny days) then teh equation might change. There’s also the capital costs to consider.

3 rayward May 21, 2015 at 9:16 am

There’s a big difference in quality between solar panels made here and those made in China; since solar panels are more likely used in sunny climates, they deteriorate rapidly if poorly made. Sure, those made in China are much cheaper, but I will suggest that experience with them may deter the use of solar.

4 Nathan W May 21, 2015 at 1:58 pm

I thought he said they’re not actually really much cheaper.

5 charlie May 21, 2015 at 9:18 am

Yes, this guy is making Alex look very bad.

Just as “fracking” turned a resource extraction geology problem into a manufacturing problem, we are getting a bit of the same with solar/wind.

Turns out distributed solar doesn’t work well though. See the feed-in problem.

Not at all convinced by the Tesla battery solution.

That all said, I suspect that more solar/wind will actually end up driving energy prices up, as it increases volatility and makes longer term investments harder to keep.

I’m not seeing it on my electric bill — I have a wind power agreement with a texas wind farm and am still paying more than PEPCO SOS.

6 Steven Kopits May 21, 2015 at 9:20 am

How often have we heard these kinds of stories? It’s so cheap, it’s incredibly competitive we’re told.

OK, fine, Then let’s pull the subsidies, the ITCs, PTCs, RECs, feed in tariffs and the like. Let’s make sure we account for the cost of spinning reserves when the sun doesn’t shine or the wind doesn’t blow. Let renewables be just another form of electricity competing on the free market. We free market guys will have no objections–but I don’t know that I’ve ever read an article advocating an end to subsidies because renewables are ‘so competitive’.

7 ttt May 21, 2015 at 9:44 am

great, lets also pull the oil subsidies.

8 Todd May 21, 2015 at 9:44 am

And coal subsidies and natural gas subsidies

9 Urstoff May 21, 2015 at 10:22 am

You get a subsidy! And you get a subsidy! And you get a subsidy!

10 Bob from Ohio May 21, 2015 at 11:11 am

“coal subsidies and natural gas subsidies”

Can you specify what these are?

11 gabe May 21, 2015 at 11:19 am

Some people claim that our military provides a subsidy to oil and gas by providing security for extraction and transportation. This is often used to justify having a military budget bigger than our next 30 biggest competitors(without even counting lots of black budget spending).

12 Lord Action May 21, 2015 at 11:41 am

In a world where solar and wind were dominant, presumably the military would be providing security for overseas manufacturers, transportation, undersea power cables, etc. Probably this is better seen as general subsidy for economic activity. I’d bet that the demand side subsidy is a more important impact than direct protection for energy producers (i.e., the military enables a large modern trade economy which demands a lot of energy).

13 JWatts May 21, 2015 at 12:04 pm

“Some people claim that our military provides a subsidy to oil and gas by providing security for extraction and transportation.”

Yeah, but this is an idiotic argument that largely eschews looking at the underlying facts. We have a military for numerous reasons and economic security is one of them, but to specifically try and pin it on the very small portion of US oil imports coming from the eastern hemisphere is silly.

14 ttt May 21, 2015 at 12:12 pm
15 Bill from Ohio May 21, 2015 at 12:15 pm

Credit for Production of Nonconventional Fuels (annual subsidy: $14 billion) – gas from geopressurized brine, Devonian shale, coal seams, tight formations, and coal-based synthetic fuels
Characterizing Coal Royalty Payments as Capital Gains (annual subsidy: $986 million)
Exclusion of Benefit Payments to Disabled Miners (annual subsidy: $438 million) – they get to deduct their payments into the Black Lung fund. Which the taxpayers overwhelmingly pay for anyways.
Exclusion of Alternative Fuels from Fuel Excise Tax (annual subsidy: $343 million) – includes compressed natural gas (CNG), liquefied natural gas (LNG), and liquid coal,
Other-Fuel Exploration & Development Expensing (annual subsidy: $342 million)
Other-Fuel Excess of Percentage over Cost Depletion (annual subsidy: $323 million) – get to deduct 10 percent of gross income from coal production
Credit for Clean Coal Investment ($186 million)
Special Rules for Mining Reclamation Reserves ($159)
Black Lung Disability Trust Fund ($1 billion) – the coal companies don’t pay in to cover the damage they are doing to their workers, the US government has to repeatedly bail them out
Coal mine reclamation funds paid by taxpayers ($245 million) – coal companies refuse to pay fully, the US government has to repeatedly bail them out
Government guaranteed loans for the development of Integrated Gasification Combined Cycle (IGCC) coal-fired power plants ($2 billion)

That’s without going into the funding for retrofitting old coal power plants, or the exemption of coal from the radiological safeguards standards nuclear is held to despite releasing more contamination.

16 Bill from Ohio May 21, 2015 at 12:16 pm

… and the formatting on my response went from a nice neat list to a jumbled paragraph. Wonderful

17 ttt May 21, 2015 at 12:18 pm

those hippies at the IMF have an estimate of the fossil fuel subsidies
http://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf

from the guardian it is $10M a minute
http://www.theguardian.com/environment/2015/may/18/fossil-fuel-companies-getting-10m-a-minute-in-subsidies-says-imf

Fossil fuel companies are benefitting from global subsidies of $5.3tn (£3.4tn) a year, equivalent to $10m a minute every day,

18 mrmandias May 21, 2015 at 12:33 pm

I have no problem with cutting real subsidies to oil and gas. But last time I looked into it, most of the ‘subsidies’ for oil and gas operations were standard corporate deductions for depreciating equipment, stuff like that. Not having a special tax burden isn’t the same thing as offering a subsidy.

19 Bob from Ohio May 21, 2015 at 12:37 pm

5 trillion a year. Wow. Total world GDP is only 75 trillion.

Oh wait:

“The vast sum is largely due to polluters not paying the costs imposed on governments by the burning of coal, oil and gas.”

So its a bulls**t “stat”.

20 ttt May 21, 2015 at 1:00 pm

as oil washes on the california shore right before Memorial Day weekend, will the oil companies reimburse all the lost tourist money ?

21 Dan Weber May 21, 2015 at 1:02 pm

those hippies at the IMF have an estimate of the fossil fuel subsidies

No they don’t. Please read your own link. “IMF Working Papers describe research in progress by the author(s) and are published to
elicit comments and to encourage debate. The views expressed in IMF Working Papers are
those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board,
or IMF management.”

22 Michael May 21, 2015 at 10:50 am

Correct me if I’m wrong, but my understanding is that most of the “oil subsidies” that some politicians have proposed eliminating are not really industry specific subsidies so much as specific definitions of standard business deductions of investments which include the word “oil”.

But, if you’re proposing just zeroing out all corporate taxation, and taxing capital gains and dividends as standard income, I’m all in.

23 Cooper May 21, 2015 at 12:33 pm

Michael hit the nail on the head.

The two big subsidies that people complain about are “intangible drilling expenses” and the depletion allowance. Both of these are entirely reasonable if you read through the IRS statutes.

1. Drilling Expenses:
Isn’t this just a normal cost of doing business? Ford gets to deduct the cost of building a new factory, why shouldn’t oil companies be able to deduct the cost of building an oil well?

2. The Depletion Allowance:
We use this for every non-renewable resources. It’s not unique to the oil industry. When you use up a mineral reserve, you’re losing an asset. A textile company can deduct the cost of using up their cotton stockpile, why shouldn’t a bauxite mine or an oil well be able to deduct the cost of using up its resources too?

The domestic manufacturing tax credit is a bit more suspicous and I’m willing to concede that we should eliminate this deduction but it’s a relatively small subsidy compared to the first two.

24 Agra Brum May 21, 2015 at 2:59 pm

Why not allow deductions for oil extraction industries similar to the automotive industry? Well, if they paid for their externalties, perhaps. But there is no carbon tax. So then it goes back to the root question, why give subsidies and tax breaks at all? We subside new factory construction to boost manufacturing. Do we want to boost additional oil extraction? And, would companies drill anyway without the subsidy? So is the subsidy a pure give-away or actual a significant stimulus?
It’s likely the former, a pure give away. Oil companies will drill wells that produce enough oil regardless. And there is not a need to encourage the particular activity. So might as well do away with the extractive industry subsidies.

25 Michael May 21, 2015 at 3:23 pm

Agra,
That may or may not be a good argument, but it is not the point of this thread. It started with a comment that renewables should get subsidies because oil gets them, but that is pretty thoroughly debunked.

If you want to propose an pigovian tax on carbon, or oil, make that argument, but don’t fool yourself that we’re somehow “subsidizing” oil, when we are treating it the same as any other business.

26 Hasdrubal May 22, 2015 at 2:12 pm

Agra: Wouldn’t that only be a subsidy if other industries _were_ taxed on their externalities? Solar and Wind certainly aren’t taxed on their externalities, not are the steel, glass, and other industries creating their inputs.

27 Charlie May 21, 2015 at 1:43 pm

You are correct.

Despite the rhetoric, the reality is that the oil and gas business today is treated largely the same as any other industry. The lack of an extra tax for a perceived externality or something else is thought of by some as a subsidy.

28 Steven Kopits May 21, 2015 at 11:34 am

You are suggesting we could disband the Fifth Fleet, which bases in Bahrain, if oil were not involved? And yet we’re heavily involved in Asia, and don’t import oil from there. And we’re heavily involved Europe, and we don’t import oil from there, either.

So you’re suggesting that, if we pulled out, ISIS would become less of a threat, and we would have peace at home? That had we not had a presence in the Middle East, the Twin Towers would still be standing? You’re suggesting that we should allow the Iranians to develop nuclear bombs, by withdrawing all force projection in the region?

It seems to me that Pres Obama tried to pull out of the Middle East, and we he did, the place disintegrated in a matter of months.

29 prior_approval May 21, 2015 at 11:59 am

‘And yet we’re heavily involved in Asia, and don’t import oil from there.’

Nope – we do however ensure that South Korea and Japan, to name two staunch and seemingly dependent allies, can count on having oil delivered through explicit support of the U.S. (That was meant to be read two ways, of course. After all, the Japanese know exactly what having the American fleet cut off their oil supply means – and what the results of too vigorously contesting American policy are.)

It really does not require a military academy level of education to understand how basically any country that imports major quantities of oil via tanker has that oil delivered at the sufferance of the American navy, which is ever so coincidentally and conveniently based at essentially every single maritime chokehold that oil passes through.

Almost as if the American military understands the critical importance of oil – whether it be by securing oil supplies, or denying such supplies to those the U.S. is in conflict with.

30 Cliff May 21, 2015 at 1:55 pm

So Japanese imperialism = good, and how dare we not sell oil to Japan just because they were massacring and raping millions of people.
American imperialism = bad

Got it

31 Bill from Ohio May 21, 2015 at 12:18 pm

It seems to me that Pres Obama tried to pull out of the Middle East, and we he did, the place disintegrated in a matter of months.

Didn’t there used to be a strongman in the region? Someone who cracked down hard on any revolutionary group that would make trouble? What happened to him, it’s like he dropped off the map in March of 2003

32 ET May 21, 2015 at 12:44 pm

ISIS arose in Syria, which is ruled by the Baathist strongman Bush didn’t overthrow. The disaster in Syria is evidence that Iraq would have imploded anyway.

The decision to invade was a historic blunder for us because it trapped the U.S. in a conflict we could have avoided, but the conflict was clearly coming regardless. If Assad couldn’t stop it, neither could Hussein. Bush merely sped Iraq’s share of the conflict up a few years.

33 Dan Weber May 21, 2015 at 1:04 pm

Unfortunately any discussion of what caused ISIS is 90% people talking about their priors.

34 Jan May 21, 2015 at 1:15 pm

Dan, that’s any discussion.

35 albatross May 21, 2015 at 12:55 pm

Wait, when did we pull out of the Middle East, again? I’m thinking I must have missed that day’s news, because it sure seems like we’ve had a huge presence there for my whole lifetime, and we still do.

36 Cooper May 21, 2015 at 1:29 pm

If the US did not intervene in the Middle East, somebody else would.

There are over a trillion barrels of oil sitting in that region. That’s worth $60 trillion at today’s prices. The value of all the world’s gold is a mere $8 trillion.

The temptation to snatch that prize is too great for any great power to resist.

A Chinese-dominated Middle East wouldn’t bother with side projects like pushing for democracy or women’s rights. They also wouldn’t allow other countries to purchase that oil for market prices.

37 Nathan W May 21, 2015 at 2:10 pm

Our push for democracy seems more like an excuse to legitimize the governments that we are OK with having elected, and for women’s rights, well what about Saudi?

I do believe that we can do some good in those areas, but these increasingly seem like excuses to get involved in messes that, well, it’s not altogether clear why we are involved in them.

38 Alain May 21, 2015 at 11:43 am

Wait, what? There’s a tax deduction I can take for all of the gas I burn? No way! I’m going to fire my accountant. He’s been making me pay gas taxes like a moron for all of these years and not even one deduction.

39 Jan May 21, 2015 at 1:14 pm

Yeah, your accountant must not have ever heard of driving-related tax write-offs. 56 cents per mile! That’s like paying you to burn as much gas as possible!

http://www.irs.gov/2014-Standard-Mileage-Rates-for-Business,-Medical-and-Moving-Announced

40 Silas Barta May 21, 2015 at 4:00 pm

No … it isn’t. If that figure is under your true costs (as for a gas guzzler), then it prevents full deduction of costs and maxes you pay taxes as if you had higher profits. (Assuming you don’t opt to itemize car costs.)

So it’s a subsidy to the extent that your true transportation costs are *less* than that figure, meaning it subsidizes low-maintenance, slow-depreciating, fuel efficient vehicles over gas-hungry high maintenance ones.

41 HL May 21, 2015 at 5:36 pm

The government almost pays me to drive my Honda Fit.

42 HL May 21, 2015 at 5:44 pm

to elaborate,

12,000 x .56 = 6720 deduction
12,000/35mpg, 342.85 gallons of gas
342.85 x $2.50, $857.13 in gas costs at current prices.

if gas goes up to $3.25 then it is $1114.27.

The rest depends on maintenance, which for a Honda is pretty low.

43 Brenton May 21, 2015 at 2:14 pm

It’s not really a free market if you don’t account for the massive externality costs of coal from its damage to public health and the environment, or any other major externality costs.

44 Cliff May 21, 2015 at 2:31 pm

Why not?

45 Krigl May 21, 2015 at 3:02 pm

If tourism revenue in a region with remoteness and forsakenness as major allure (think Devon, Cornwall etc.) dwindles owing to rows of giant fans, does that also count? Not that I mind burning less coal _now_, but considering how much the whole civilization owes to coal and how necessary it will still be for decades to come, this talking point is something like terrorist made WMDs – people wielding it should be dealt with swiftly and mercilessly.

46 steve May 21, 2015 at 9:30 pm

Sure it counts. I suspect that the loss of a few tourists secondary to giant fans would be valued at much less than the health costs of the many thousands affected by coal pollutants, but feel free to make you own conclusions.

Steve

47 Krigl May 22, 2015 at 7:44 am

You should suppress your suspicions for a while and go with the presumption of innocence. After all, the conclusions about suspects should not be based on gut feeling.

https://en.wikipedia.org/wiki/Economy_of_Cornwall

https://en.wikipedia.org/wiki/Economy_of_Devon

Wind is dispersed source with low energy density, you can’t save “many thousands” from coal pollutants with what is enough to ruin view for many thousands. And if the coal consumption actually rises, like in Germany? Despite the happytalk, renewables (well, let’s be exact, their legally mandated perks) disrupt primarily gas, then maybe hard coal. Lignite (and nuclear) will live. Maybe legal system in States will be faster in removing the most egregious insanities and they have those Great Plains, but I wouldn’t count on it – US grid is way worse than European, which was and still is troubled by the renewable craze. If you want to lower coal consumption, go with gas, nuclear and hydro, as much as local conditions allow. If renewables are your religion and you feel that you simply MUST do something, lest the CO2 eats your children and rapes your dog, go with local conditions as well. That means mostly nothing, then things that are traditional tech, just rebranded as renewable (hydro, biogas), and then some solar. Wind is, outside some places with natural conditions, simply without bright future – it is just as dependent on breakthroughs in storage as solar but without its potential for future efficiency growth.

48 MOFO. May 21, 2015 at 10:03 am

Not being reported much, but I think this technology could have a huge impact on grid power:

http://spectrum.ieee.org/energy/fossil-fuels/quicker-coal-power

Basically its a fossil fuel plant that can ramp up or down its power output quickly:

“Consider the massive lignite-coal-burning power plant that German utility RWE Power started up near Cologne, Germany, in August 2012. Each of the dual 1100-megawatt steam turbines can ramp generation up or down by 500 MW in less than 15 minutes.”

I would think that a wide deployment of this technology could solve the variability problem that wind and solar have.

49 Agra Brum May 21, 2015 at 3:01 pm

Natural gas plants do that pretty competently as well, and is usually the preferred fossil power of choice for handling unexpected peak loads. Interesting that coal can do it too, though.
Perhaps when it comes to better energy use, there is no great stagnation…

50 Shane M May 21, 2015 at 10:30 pm

Good article. I hadn’t read about these coal peaker plants that can respond quickly. May give new life to coal.

51 Hazel Meade May 21, 2015 at 10:04 am

Solar and wind don’t always compensate eachother. The wind doesn’t always blow at night, or at dusk, and the sun doesn’t always shine during the day.

Also, the locaitons where there is a lot of wind or sun are geographically limited. As the best spots fill up, the efficiency of wind and solar will decline. By contrast, you can plop a gas plant pretty much anywhere.

Battery costs are also recurring, since Lithium Ion batteries wear out as everyone knows. The Tesla battery would have to be replaced every few years. Does the cost of replacing the battery justify the savings in energy costs? At $5000 a battery, even if it take 5 years to wear out (a long time for Li battery in my experience), that’s $1000 per year you need to be saving on electricity costs to make it worthwhile.

Nuclear would be the cheapest if the morons would get out of the way and stop burdening it with regulatory harassment.

52 Boonton May 21, 2015 at 11:48 am

I’m not sure how reliable the cost accounting is but nearly half of my electric bill is not for the generation of electricity (where nuclear can be very cheap) but in the transportation to my house. Batteries do seem to complement wind and solar in that they can reduce the actual need to have a huge grid. Power can be produced nearby, stored and used nearby. $5K batteries are probably not going to cut your electric $1K per year but I would imagine the cost of batteries could be brought down and you could scale the things. In other words, towns could have ‘battery towers’ the way they have water towers now. I’m not talking about disconnection from the grid but I think you could end up with something like what happened with telephone companies. The ‘phone system’ is still there in a sense but you are no longer tied to a single mega-phone company.

And no you cannot ‘plop a gas plant pretty much anywhere’. The closer you put an electric plant of any size near lots of people, the more the local opposition will be and the more real estate costs go up. What is missed by people who cry ‘lots of nuke plants solve everything’ is that electricity’s main cost driver is not so much production but variability in demand. The most efficient way to produce electricity is with huge mega-plants but huge baseline plants can’t be powered up or down quickly to accomodate our night-day cycle and periodic spikes in demand. Anything that smooths out demand (smart meters that pay people to run things at night, battery systems that soak up cheap night electric and sell it off during the peak day) or adjusts production to align with demand (solar works well here since peak demand is during the day typically) lowers costs, both money and environmental.

Also people here seem to have forgotten basic portfolio theory. A diverse portfolio works when you hold many different types of assets that are uncorrelated to each other. When you do this returns increase relative to any given level of risk. Portfolio’s can be thought of as producing something, returns, at a cost, risk. Just like your 401K produces returns for retirement you can model electric production as a portfolio of different assets. Diversity there lowers costs, it doesn’t increase them. By complementing solar with wind you will more often than not offset low output in one with higher output in another. Doing a mono-focus (i.e. nuclear only!) you are missing out on this fact.

53 Lord Action May 21, 2015 at 12:15 pm

This is something of a strawman. I think most people who propose nuclear power as a solution to energy cost and pollution or climate issues are really think of a system where 70-90 percent of electrical power comes from nuclear sources. You’d likely never tear down your hydroelectric dams, and you’d probably want some gas power in the mix.

54 Dan Weber May 21, 2015 at 1:17 pm

If “variability in demand” were really the biggest problem with the grid, then the wind and solar plants should be burnt to the ground, since they would make the problem worse.

Each production source has its own strengths and weaknesses. Solar is great during the day but the UK had already eaten all the sweet stuff, with the evening being the time of highest load after solar is removed. I’d say the US should try to get close to that. Nuclear is great for baseline power. It works great in France, and I think the US should try to get close to that, replacing round 95% of coal plants with nuclear.

55 Boonton May 21, 2015 at 3:04 pm

Except for the fact that solar, at least, happens to track demand pretty well.

56 Nathan W May 21, 2015 at 2:14 pm

I’ve read some articles suggesting that electric vehicles could become the storage capacity, with a smart system using the car batteries for electricity at peak times and recharging for commute times.

I don’t think that portfolio theory applies very directly to diversification of energy generation, but it’s interesting to consider.

57 Boonton May 21, 2015 at 3:06 pm

A battery in a car has the problem that it cannot be so heavy that the car consumes all the power just moving the battery around. A battery in a home or building (or even a building size battery) doesn’t have to worry about being too heavy.

Interesting someone on quora asked a while ago how much more power the US would need to generate if all the cars switched to electric. The answer was surprisingly low, like a 20% increase in total electrical output would be required.

58 Michael May 21, 2015 at 3:09 pm

Ummm, kinda. It could help somewhat with equalizing daily demand, but that isn’t the problem.

Unfortunately, as Hazel pointed out, the indeterminacy problems with renewables such as wind and solar are not a cyclical problem, as the arguments of Mr Naam assumes. To an extent it is true that peak production times of wind and solar are vaguely complementary, but variability throughout the day is not the real problem. The big issue with both wind and solar is that their inter-day (i.e. peak) production from day to day will vary quite widely. And, while cars may be able to charge at night using cheap baseload (or wind) power, they want to use it up largely the next day and expect to be recharged again the next night. Their ability to store energy through a multi-week weather cycle is significantly less.

59 Hazel Meade May 21, 2015 at 7:57 pm

So what happens when you have an emergency and need to drive your car during the middle of the night when it’s being used as a battery?

60 Boonton May 22, 2015 at 8:12 am

Self driving Cars + Uber = Car time share. You need a car late at night you activate your app and in 10 minutes the self-driving car pulls up. Instead of keeping cars in your home cars could park themselves in nearby lots where they wait for the morning rush as they charge. If a few cars have to make runs at midnight its no big deal.

61 Lord Action May 22, 2015 at 9:24 am

Car sharing can’t work for people with children, which if you have a house, probably includes you.

But, self-driving cars lower the cost of car ownership, and that means more people will have cars and households will have more cars each, so it’s more likely there’s just a third car with capacity to use in this application.

62 ttt May 22, 2015 at 2:40 pm

“…people with children, which if you have a house, probably includes you.”

is that how reproduction works ?

63 Bojan May 29, 2015 at 7:23 am

Nuclear would been both cheaper and SAFER if morons had stopped requiring it to produce weapons grade plutonium as a byproduct.

64 Scott Sumner May 21, 2015 at 10:20 am

Excellent post. And I agree that the carbon tax would be better than clean energy subsides.

65 Slocum May 21, 2015 at 10:25 am

If this is broadly true (solar+wind with batteries to manage variability soon becoming absolutely cheaper than all fossil fuels) we have little to worry about — cancel all the subsidies, stop bothering about global warming and wait a few years for the CO2 problem to solve itself via market forces.

66 JWatts May 21, 2015 at 12:09 pm

I agree with this, but unfortunately most renewable power advocates are so invested in the current subsidy regime that they can never seriously consider the idea of eliminating them.

67 Brock May 21, 2015 at 10:34 am

“By the way, the common refrain that solar prices are so low primarily because of Chinese dumping exaggerates the impact of Chinese manufacturing. Solar modules from the US, Japan, and SE Asia are all similar in price to those from China.”

Yes, that’s how the law of one price works in a global commodity. When someone dumps their product on the market at below-cost, everyone else must do the same to minimize losses on their invested capital. The prices will rise back soon though, as Yingli (the largest Chinese manufacturer of solar panels) has finally admitted they’re out of cash after selling panels at a loss for the last four years. Once they exit the market supply will go down and the others will face less competitive pressure, allowing prices to rise to sustainable levels.

“Wind and solar compensate for each other’s variability, with solar providing power during the day, and wind primarily at dusk, dawn, and night.”

Which is another way of saying that you have to install two renewable power plants to replace even one fossil fuel plant (which can run all day and night). Hardly a ringing endorsement.

“Solar and wind power prices improve reasonably predictably following a power law.”

Subject to input limits. You can’t drive the cost of a manufactured item to less than the sum of its inputs. Solar panels use lots of polysilicon, as well as aluminum for the frames. There’s a limit to how cheap the panel can get once you account for this basic fact.

Sorry, but this sort of sloppy triumphalism isn’t helpful to any cause related to climate change or pollution. It’s just full of weak or over-played arguments that make it easy for the fossil fuel supporters to dismiss the whole project.

68 Nathan W May 21, 2015 at 2:15 pm

I think the conventional view is that prices for solar will continue to decline for the foreseeable future, whereas you suggest that prices will rise.

69 Brent May 21, 2015 at 10:44 am

He does need a primer lesson on price competition.

70 David May 21, 2015 at 10:59 am

That New Mexico deal is fantastic. It’ll be interesting to see where the bottom on solar PV is.

The next frontier is grid integration, which is a combined question of policy and technology. The grid requires power in to equal power out at all points in space and and at all timescales. It wasn’t designed for distributed generation and long-distance transmission of power. As a result there are places with negative price of electricity at times:
http://engineering.wayne.edu/wsuwater/emissions-model/lmp_contour_map.png

Negative price means in this context: “turn off your wind turbine.”

Not an easy problem to solve technologically: optimized power flow is NP-hard. A smart grid presents security issues. Nobody really knows the topology of the distribution network.

Given that grid infrastructure is a 30 year investment, we need to work hard on these problems now.

71 Boonton May 21, 2015 at 11:51 am

Negative price means in this context: “turn off your wind turbine.”

Or would it mean disconnect your turbine from the grid and direct its power to the bank of 50 Tesla batteries stored at your site. When prices spike high run the turbine into the grid again and discharge the batteries too if it is high enough.

72 albatross May 21, 2015 at 1:04 pm

Are there any economically viable processes that can be run intermittently when power is cheap? That would be a financial alternative to batteries, in some sense–when the price of power drops low enough, start off your electricity-intensive process, and run it till electricity gets expensive again.

I guess this requires a process where the capital investment idn’t too high (so it doesn’t cost you too much for all the time it’s sitting idle, waiting for the grid to be full) and also one that doesn’t require a lot of labor (so you don’t have to pay salaries for people to sit around waiting for power to get cheap). It’s like a battery, except instead of putting electricity in and getting electricity out, you put electricity in and get a product out (or, one step further, put electricity in and get money out).

73 JWatts May 21, 2015 at 1:15 pm

“Are there any economically viable processes that can be run intermittently when power is cheap? That would be a financial alternative to batteries, in some sense–when the price of power drops low enough, start off your electricity-intensive process, and run it till electricity gets expensive again.”

There are. Water desalination is an obvious one. But it probably wouldn’t be economically viable to run any such process intermittently. All the electricity-intensive processes I can think of with a practical large scale application are also capital intensive. And if you are capital intensive, you need to run the process continuously to cover capital depreciation. Trying to run such a process intermittently would drive your capital costs up to the point it would swamp any potential energy savings.

74 Boonton May 21, 2015 at 3:09 pm

Yes, I believe one person found when electrical rates vary it was cheaper to heat his house late at night in winter with electrical heaters than gas. One guy I knew who worked at an autobody shop did the painting/drying at night because they had cheaper electric rates then. ‘Smart buildings’ could reschedule tasks like running dishwashers/dryers to activate late at night to take advantage of variable pricing or at least avoid peak pricing.

75 Dan Weber May 21, 2015 at 1:24 pm

I have no idea how big a dent they make in the grid, but cloud computing companies offer variable rate servers, presumably (I’ve never used them) so for jobs where “I just need this to run sometime in the next day” you can have it run at a time when demand is low.

76 Nathan W May 21, 2015 at 2:17 pm

I get what you mean.

But consider how industry usually requires highly stable electricity access to maintain processes predictably. For example, frequent power outages in the developing world often prevents industry from serious considering setting up in many places.

If someone’s got some ideas though, then that would sure be cool.

77 David May 21, 2015 at 2:41 pm

Yes, we are seeing this sort of demand response now.
Storing heat and cold is very cheap. So refrigeration, electrical hot water heaters, building air conditioning are being implemented for demand response even now. An ability to shift 10% of the daily load around would make a huge difference!

Industrial process are generally very capital intensive, and so they don’t work for this.

JWatts: Desal is Capital intensive, not electricity intensive. Hard to see that working.

DanWeber: They are trying to use their idle night-time capacity. Most cloud computing queries are time-sensitive (e.g., using Google to search). You can’t shift that demand without losing customers. Currently, they are also mostly capital intensive.

78 Krigl May 21, 2015 at 3:11 pm

>JWatts: Desal is Capital intensive, not electricity intensive. Hard to see that working.

Not to mention the joys of PV plant maintenance if you locate it too close to the sea shore. Though the same could be said about running them in the desert and the article has magically solved that by omission, so who knows, might work the same for salty air as it does for dusty air.

79 David May 21, 2015 at 3:38 pm

Krigl: why would you build the PV next to the sea for the desal?

And all plants have O&M. The EIA puts it at 1 cents per kWh per solar PV. It’s a good bet this will decrease, just by learning curve arguments. I’m sure XCel factored that in their bid when they proposed the PV plants Ramez is hiring.

80 David May 21, 2015 at 2:35 pm

Indeed. But Tesla batteries are not cheap enough yet. Take dollars per kWh installed ($500) divide by number of cycles (let’s say 5000). You get 10 cents per kWh. And that’s not including install costs, O&M, cycling degradation, losses in the battery, and depreciation. 20 cents per kWh might be more realistic.

There are some behind-the-meter applications for which it makes sense (e.g., in SoCal). They can also provide frequency leveling services to the grid. And replacing the peakiest of the peakers. But it’s nowhere near the price where Solar + Tesla batteries replaces baseload. It’s a good start though!!!

81 Boonton May 21, 2015 at 3:12 pm

That’s a bit of a strawman. No one advocates a 100% solar based grid and doing so would be inefficient. So would 100% nuclear since you’d have to run some nuclear plants well below capacity to be prepared for peak demand.

What’s interesting though is even with very dirty generation, like coal, you could still squeeze out a lot of savings by evening out peaks.

82 David May 21, 2015 at 3:28 pm

Who said anything about a 100% solar grid?

My point is important above a 10% grid, according to the NREL analysis. Notably California is planning for a 20% grid. And the more solar penetration there is, the bigger the problem.

83 Boonton May 21, 2015 at 9:40 pm

So suppose people just got in the habit of turning off their lights and TVs on sunny days? Even turning down their air a bit?

If this caused demand to drop, say, 10-20% that would seem to be functionally the same as 10-20% of the grid being solar. Would that cause the grid to go crazy? Is grandpa helping Al Qaeda when he follows the kids around switching off lights?

84 ABV May 21, 2015 at 11:05 am

I’m not sure why there is so much negativity on this post. I work in the oil and gas industry and as a result follow all energy news very closely. All of this is very credible and accurate. At my company we are planning to see significant headwinds on demand growth starting in the next decade or two.

I don’t think most understand how glacially slow anything in the energy industry is. Everything is heavily regulated and involves extremely capital intensive infrastructure that infringes on lots of property we don’t own. This mean lots of negotiations, permitting processes, and fund raising to get these deals done on top of the need to develop new technology. For instance the horizontal drilling revolution was over three decades in the making, it’s just now that people notice as our scale has increased to the size that we affect world markets. Solar and Wind are a huge share of new generation each year already and many of their subsidies are being removed, but it takes time to completely reinvent one of the largest sectors of the economy. I imagine in about a decade when renewables and battery technology are to the scale that they really have an effect the skeptics will be surprised.

85 Agra Brum May 21, 2015 at 3:04 pm

Thanks for this perspective, and about the cumulative impacts of large capital projects that take time to come online. From 2010 to 2025 (to pick a somewhat arbitrary value) it will be a sea change, even if we are only just starting to notice that in 2015.

86 John May 21, 2015 at 11:10 am

I am a technology optimist but a policy pessimist. We are not placing solar/wind capacity where it has highest ROI, we are placing it where it has … pride for homeowners and profit for installers.

I drive past solar on north facing roofs daily – and a north facing roof will never have lower production cost than natural gas.

87 Dude May 21, 2015 at 3:21 pm

In Oz it will. 🙂

88 Ronald Brak May 21, 2015 at 9:59 pm

John, in Melbourne, which is at the bottom of mainland Australia and at about the same lattitude as Richmond in Virginia, solar panels on south facing roofs produce about 75% the output of panels on north facing roofs. And the closer one gets to the equator, the less the difference. And panels on east or west facing roofs produce about 13% less. So it’s quite normal in Australia for south facing panels to not only produce electricity at a lower cost than natural gas, utility natural gas generation would have to produce electricity at a negative cost to be competitive thanks to what we pay for electricity distribution here. If roof pitches are different from the typical 18.5 or 22.5 degrees in Australia this will affect the result, but generally speaking given the current low price of solar PV, north facing rooftop PV in the US should still easily outcompete natural gas generation in states such as California which have high retail electricity prices..

89 JLV May 21, 2015 at 11:17 am

I will be interested to see how this comment thread evolves. Opposition to solar, like opposition to vaccinating children, seems to be a tribal affiliation type thing that’s impervious to empirical evidence to the contrary.

90 JWatts May 21, 2015 at 12:17 pm

That’s a laughable comment. A much more accurate comment would be along the lines of:

“Support for solar, seems to be a tribal affiliation type thing that’s impervious to empirical evidence to the contrary. ”

Personally, I think it’s inevitable that (assuming downward pricing trends continue) that wind will become the dominant source of electrical generation and it’s quite probably (though not as certain) that solar will become significant. That being said renewable advocates, particularly solar advocates, routinely ignore or fail to address reasonable constraints and critical comments.

91 Dude May 21, 2015 at 3:22 pm

I would hope you can put a reminder in your calendar to come visit this comment in 5 years. It will be an excellent learning opportunity for you.

92 mrmandias May 21, 2015 at 12:36 pm

I belong to the oil and gas tribe but I have solar panels on my roof. Suck it.

93 Slocum May 21, 2015 at 1:09 pm

I think the opposition is to forcing a transition to solar & wind that would greatly increase costs (through higher rates and subsidies), threaten the reliability of the electric grid, and line the pockets of well-connected cronies. The fear is a repeat of the bio-fuels debacle. But I don’t think anybody around here is going to oppose un-subsidized solar and wind power that are cheaper than fossil fuels and equally (or at least acceptably) reliable.

94 Agra Brum May 21, 2015 at 3:06 pm

What if none of them were subsidized, but there was a mild carbon tax?

95 Dude May 21, 2015 at 3:23 pm

I would be all for this.

96 Slocum May 21, 2015 at 3:58 pm

Why would we need a carbon tax be needed if wind and solar were cheaper?

97 Dude May 21, 2015 at 6:11 pm

We wouldn’t. The carbon tax would be temporary.

98 Agra Brum May 22, 2015 at 12:53 pm

to pay for externalities. And because it would drive efficiencies in many other energy-related markets, not just utility scale power generation. Of course, this does assume the existence of human-driven climate change, but it could be justified on the precautionary principle based on C02 levels going from 250 ppm to 400 ppm in 50 years.
And if in 15 years we learn that the Earth tolerates those carbon levels just fine, we can always repeal the taxes.

99 JWatts May 22, 2015 at 5:10 pm

“…but it could be justified on the precautionary principle…”

The precautionary principle is psuedo-science and faith. It’s directly opposed to technological progress and anyone that was serious about it would logically end up living a live style similar to that of the Amish.

100 Krigl May 21, 2015 at 3:23 pm

Amen

101 Urstoff May 21, 2015 at 1:19 pm

People who disagree with me are just like creationists. Or maybe Scientologists? Whichever is worse.

102 Krigl May 21, 2015 at 3:22 pm

Strange, from what I observe, people who dislike “green” energy policies usually view anti-vaxxers as Nature’s error. You should enrich your social circle, you might be surprised how many scientists and engineers* oppose current deployment style of solar et al. despite the nerdy enjoyment of the technology itself.

103 Hazel Meade May 21, 2015 at 3:59 pm

Nobody is “opposed” to wind power.
What we’re opposed to is forcing a transition to windpower by using subsidies and banning alternatives like nuclear.
I don’t want to experience blackouts or (for example) be told that I’m not allowed to use air conditioning anymore because of electricity rationing.

104 Urstoff May 21, 2015 at 6:08 pm

I am opposed to the phenomenon of wind.

105 JC May 21, 2015 at 11:37 am

If I am reading this right it says that the all found cost (excluding storage) for wind and solar is now below $0.10 per kwh and that is awesome.

It seems to me that the cost of storage is likely to be a long term problem with the result that we will always want to have standby power sufficient to fill all of the power needs. Solar and wind will be truly disruptive when the total cost (including capital) of an intermittent kwh from renewable is less than the cost of the gas burnt to generate one kwh in a modern gas powered plant. At that point we feed in wind and solar when available, and use it immediately, and burn natural gas the rest of the time.

You might even have an intermediate form of energy storage where you use surplus renewable energy to compress natural gas during the daytime and then release that pressure through the turbine when you burn the gas.

106 JWatts May 21, 2015 at 12:20 pm

“You might even have an intermediate form of energy storage where you use surplus renewable energy to compress natural gas during the daytime and then release that pressure through the turbine when you burn the gas. ”

The essentially the idea behind compressed air storage. You need to compress air to efficiently use a natural gas turbine and currently that compressed air is generated as part of the process and uses a substantial portion of the energy generated. So, instead you compress air using cheap wind power at times when grid demand is low. Then you feed the compressed air to a natural gas plant when grid demand is high.

107 JWatts May 21, 2015 at 12:20 pm

Should be: That’s essentially the idea….

108 JC May 21, 2015 at 12:32 pm

I was focusing on compressing the natural gas but you could also compress the air.

109 JWatts May 21, 2015 at 1:18 pm

It’s far more expensive to store compressed natural gas than to store compressed air. Since either medium will store the energy at roughly the same efficiency and since you need compressed air to run the compressor in a natural gas power plant, compressed air is a more practical solution.

110 Dennis Rowan May 21, 2015 at 11:37 am

When you put the PV or CSP together with SES (stationary energy storage) or MES (mobile energy storage) and a smart operating system that can integrate and sell the controlled generation and load management into the energy markets you get system synergies.
I t does not make sense to talk about solar or wind or MES or SES without a SYSTEM. Does it make sense to talk about the cost, ROI or efficiency of a Computer Server if it is not part of an interoperable, modular scalabel internet? How smart is a smart phone if all you do on it is ‘phone’ (vox trans)
The new SYSTEM integrates PV and wind and EVs and chillers and LEDS into actual PP(power plants) and virtual PP VPP that trade into the energy markets, lowering their LCOE to points that outcompete Coal and NG.
It’s the SYSTEM, not just the componenets. If a business can’t do energy systems analysis then they won’t be getting the most bang for their bucks and will be outcompeted by those who integrate smart energy SYSTEMS.
For distributed PV or wind or Fuel Cell with SES and MES toscale up to above 20% of the Grid load you need smart EMS. It’s the system analysis that provides total costs and total benefits. Component analysis by itself is insufficient and misses many variables and revenue streams.

111 Nathan W May 21, 2015 at 2:23 pm

In this case, it provides us with the magical value of the “backstop price” in analyzing fossil fuel markets. But yes, systemic effects would be relevant, as the true price would probably be higher than the up front backstop price once accounting for the need to use other sources to match supply and demand at the right times.

112 David Levine May 21, 2015 at 11:41 am

Nice post. I disagree on one point. If the demand for electricity responds by a modest amount to real-time prices, then the variability of wind and solar are much less important concerns. At the same time, storage is much less valuable as an asset. Thus, improving demand response and real-time electricity markets (largely an economic innovation, though requiring technology that helps schedule loads) is probably more important than improving storage.

113 JWatts May 21, 2015 at 1:24 pm

I disagree with your one point.

“If the demand for electricity responds by a modest amount to real-time prices” I’m confident that’s true.

“then the variability of wind and solar are much less important concerns.” That does not follow from your first point. Wind is highly variable. Modest demand responses won’t be enough if the Grid is 20% electric and that supply can drop to 0% in a 4 hour period.

114 Sam May 21, 2015 at 11:49 am

On a climate blog (contrarian Judith Curry’s, specifically), there was a guest post by an engineer who argued that grid-level system costs, not the marginal costs of generation, might actually be the significant barrier to bringing renewables online. In the comments, I complained that I don’t even know how to do a back of the envelope calculation to assess the believability of this claim. Someone actually pointed out that I don’t need to, pointing me to this study: http://www.oecd-nea.org/ndd/reports/2012/system-effects-exec-sum.pdf. See table ES.2 on pp7-8. I’m not sure how much stock to put in the results. Oddly, they suggest that these grid-level system costs are modest for the US grid (a couple of cents per kWh) but more substantial in Europe.

Anyhow, I’m curious what Ramez thinks about the power grid as a whole, and how it will or should change as more renewable generation enters the market. Is it a problem that solves itself or not?

115 JWatts May 21, 2015 at 1:27 pm

“Is it a problem that solves itself or not?”

Ramez is arguing that electrical storage will become cost effective. With cheap storage, the impact on the grid is trivial. Indeed, with cheap enough storage, you don’t even need a grid as big as the one we currently have.

116 ElamBend May 21, 2015 at 6:55 pm

Ramez kind of handwaived through this too and it goes against his headline (Miracle occurs here). Has anyone really put these new batteries together in a scale that matters? I don’t think so. And don’t we need some new kick ass capacitors?

Also, what is the price function of wind and solar. Is wind cheap because it produced energy mostly at off-peak demand times? This could be an issue for future development. (Also, as other people noted, transportation could be an issue – Ask T. Boone PIckens).

117 Art Deco May 21, 2015 at 12:05 pm

Does this means Elon Musk owns us now?

118 albatross May 21, 2015 at 1:07 pm

No, but his genetically enhanced offspring will rule our normal offspring on Mars. Until the AIs take over, anyway.

119 Urso May 21, 2015 at 12:10 pm

The social implications of renewable energy never fail to crack me up. Some commentors inevitably fly off the handle at the mere mention of the word solar. That’s the kind of thing those awful Blue people are interested in, and we are good wholesome Red people after all.

120 mrmandias May 21, 2015 at 12:38 pm

Ironically, that’s some pretty epic stereotyping and tribalism that you’re engaged in.

121 Urso May 21, 2015 at 2:51 pm

a, I’m a Red myself. b, “some commentors” is far from tribalism and stereotyping, maybe if I had said “all conservatives.” Any response other than a weak tu quoque?

122 Edgar May 21, 2015 at 12:40 pm

Tell it to a German: “residential prices are €285 per MWh, some of the highest in the world, partly because they include subsidies for renewables that are one-and-a-half times, per unit of energy, the power price itself).”
http://www.economist.com/news/briefing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euros

Pretty easy to get there from here.

123 prior_approval May 21, 2015 at 1:29 pm

Residential prices. As one might expect from a mercantilist society, the cost of wholesale (industrial) electricity is less than that in the U.S., as former GE chairman Immelt discovered when talking about what a German steel mill pays for electricity – he was mocked for being not only utterly inaccurate, but not even being aware that German industrial customers paid less for electricity than American ones. (Of course, that one country is noted for its export surpluses, and the other for its import deficits is just coincidental – well, with the proer perspective, it seems.)

That residential customers would take the largest burden was part of the longer term political plan in gutting the Energiewende. However, it seems as if German electrical consumers – a group that pretty much maps 1 to 1 to German voters – feel that shutting down nuclear power is a worthwhile goal, regardless of what it costs. And it is always amusing to read media sources not noted for the interest in the welfare of the poor to start highlighting how poor people are suddenly paying too much for electricity.

But then, Germany is a socialist hellhole, after all, because of all the Germans who bother to vote.

124 Cliff May 21, 2015 at 2:07 pm

Yes, it’s VERY amusing when poor people suffer and the wrong people notice it

125 Nathan W May 21, 2015 at 2:27 pm

In a system with so many social subsidies, I don’t think it’s reasonable to criticize the government for measures which increase energy costs on the basis of the effects on the poor because there are so many benefits already provided to this group.

126 Cliff May 21, 2015 at 2:35 pm

I don’t think it’s reasonable for you to criticize me for hitting my wife every once in a while, since I already provide so many benefits to her

127 MOFO. May 21, 2015 at 3:56 pm

I guess I shouldnt be surprised that your Germany crotch-sniffing extends to cheering on corporate welfare paid for by the average citizen.

128 JWatts May 21, 2015 at 4:24 pm

“Residential prices. As one might expect from a mercantilist society, the cost of wholesale (industrial) electricity is less than that in the U.S … That residential customers would take the largest burden was part of the longer term political plan in gutting the Energiewende.”

So, mercantilist German politicians force the populace to subsidize industrialists with cheap electricity, so that they can push cheap industrial goods onto the world market?

Thanks for the heads up prior_approval.

129 Bojan May 29, 2015 at 8:32 am

More like: government who decided not to hurt it’s manufacturing industry, and in effect it’s bottom line, and in effect, it’s citizen much more than they’ve hurt them by having THEM carry the burden of the popular vote that was result of batshit insane anti-nuclear propaganda in Europe following the Fukushima incident. Ideally, people are not dumb and the spin machina can’t spin them (by the way to biggest chip in to anti-nuclear panic at that point came from fossil sector), but in the end Merkel’s government made the least bad moves it could with the hand it had at that time.

130 Edgar May 21, 2015 at 4:39 pm

Wicked Sargon I of Akkad brought us down,
allowing trade with strangers out of town.
The unhappy gods punished us with comparative advantage,
and with it came the inequality against which we curse and rage.
But from this misery a new theosophy is born,
the reign of benighted individualism is torn.
The newl hierophants, our Francos and Chun
du Hwans, will lead the sacrifice to wind and sun.
And opportunity for the poor
will be ushered out the door.

131 Daniel in VA May 22, 2015 at 9:18 am

Mercantilism, really?

132 Daniel in VA May 22, 2015 at 9:22 am

And with fiat paper money?

133 Krigl May 21, 2015 at 3:28 pm

There’s this mythical world beyond US borders, where most of us actually reside. You’d be surprised where do political fault lines lie. Better dead than Red, after all, wasn’t coined ’bout Republicans.

134 Urso May 21, 2015 at 6:46 pm

Of course, and I apologize for my apparent myopia, but this is a website written in English by two American professors. I don’t think it’s a huge stretch for me to assume that most readers are (like me) Americans, although I wonder what the actual numbers are.

135 Krigl May 22, 2015 at 8:01 am

I’d wonder too, and with all their friends in visualization and data-driven number crunching, they should have already predicted this demand and provide a nice graph of visitors by country. Nevertheless, the effect you describe works in other countries/languages just the same and I’ve witnessed plenty of lefties/liberals/progressives/greens to have the same reaction as right-wingers/conservatives/whatever, even from countries where the division lies elsewhere. As for the folly of ascribing it to renewables, instead of policies around them, others have already explained it enough.

Just before submitting, I went to check Alexa and US accounts for majority, though just barely – 55% in the last 30 days.

BTW. Czech Republic here, and just from this thread there is Germany and Australia or Britain, if I recall correctly.

136 Beemac May 21, 2015 at 12:45 pm

Theorum: A media article on a wind or solar project will give its installation costs or the value of its energy produced, but never both.
Corollary 1: One therefore can never assess the economic reasonableness of any green energy project from a single media article
Corollary 2: For supporters of green energy, there is a good reason for Corollary #1.

from

137 Dan Weber May 21, 2015 at 1:28 pm

There are three key metrics for power generation:

1. Construction costs (to build the facility)

2. Operating costs (that you need to keep the facility able to produce power)

3. Marginal costs (that generally scale linearly with output)

If you decide to ignore 1 or 2 you can make the perfect case for any particular source.

138 Beemac May 21, 2015 at 12:49 pm
139 AIG May 21, 2015 at 12:50 pm

For something to be “disruptive”, they have to compete in the same marketplace to some degree.

It doesn’t matter how “cheap” they get. That wind farm out in the middle of Texas isn’t going to provide cost-effective…and certainly nowhere near the sufficient amount of power…to power my home compared to that massive 2,000 MW coal plant 30 miles outside of Houston.

That’s the problem with wind: it requires not just the natural conditions, but it also requires the advancements in storage technology AND transmission technology. And the laws of physics are still going to say that a power source 500 miles from where it’s needed, isn’t effective.

Same with solar plants etc.

Also, people are forgetting just how MUCH electricity is used in the US. Think of it this way: to provide enough power for the city of Providence with solar, you may well have to cover every inch of the state of Rhode Island in solar panels (assuming the sun ever shines in Rhode Island).

All that energy could instead be provided by a relatively tiny power plant, with a footprint so small that people 1 mile away will never know its there.

Coal and gas are….scaleable. Solar and wind…are not.

140 ttt May 21, 2015 at 1:16 pm

ellipses…are not informative

141 Dan Weber May 21, 2015 at 1:32 pm

Over 500 miles you lose about 4% of the power, and the power will cost about 10% more being that far away.

This is hardly a massive loss, although the wind-proponents seem to forget that constructing a grid can involve a lot of cement.

142 JWatts May 21, 2015 at 1:37 pm

“…AND transmission technology. And the laws of physics are still going to say that a power source 500 miles from where it’s needed, isn’t effective. ”

Your correct about the necessity of storage technology, but your wrong about both transmission technology and the laws of physics.

From wiki: ” For example, a 100 mile 765 kV line carrying 1000 MW of power can have losses of 1.1% to 0.5%”. So a power plant that’s 500 miles away only needs to be 6% cheaper to compete with a power plant in the immediate vicinity.

143 Todd May 21, 2015 at 3:34 pm

to provide enough power for the city of Providence with solar, you may well have to cover every inch of the state of Rhode Island in solar panels

A quick back of the envelope calculation has me at 4% of land area of RI to provide all the power consumed in the state.

144 Ronald Brak May 21, 2015 at 10:15 pm

And looking at a satellite photo, I see plenty of unused roofspace in Rhode Island.

145 prior_approval May 22, 2015 at 1:34 am

Well sure, but as many commenters seem to believe, solar installations would completely destroy Rhode Island’s economy, in some fashion, based on the idea that just because the U.S. is incapable of handling a modern electrical grid, everyone else is too.

Somewhat like how for the last decade or so, Germans I’ve known that come back from visiting the U.S. talk about the poles where wire is strung – they never imagined that pretty much the entire U.S. would look like the pictures they are familiar with from poorer nations in Asia or Africa.

146 JWatts May 22, 2015 at 5:21 pm

“…would look like the pictures they are familiar with from poorer nations in Asia or Africa.”

What you mean like this picture of Tokyo?

http://www.energylivenews.com/wp-content/uploads/2014/02/Power-lines-in-Tokyo-prefecture-575.jpg

LOL, you really seem to live in a mental bubble.

147 collin May 21, 2015 at 3:33 pm

Well, I have assumed Tyler Cowen has always been my decider of when the solar revolution will start being that he is basically against subsides and for innovation. And he has yet to start stating his support for solar yet. That said:

1) Here in the SoCalifornia it is poping up everywhere because the power company charges double for peak use (100 degree days in the summer.) I suspect the economics is not as strong in other states.
2) I have yet to see how commercial buildings would do as they tend to pay less for electricity and don’t have the roof space.
3) I do wonder if Power Companies (esp in Hawawii) don’t start more Solar City type programs. The power company will suppy the rooftop panels for customers.

148 Floccina May 21, 2015 at 3:53 pm

Cool, I hope he is right.

149 Plucky May 21, 2015 at 4:58 pm

I am an energy analyst by trade, so this topic happens to be a professional interest of mine. Several comments:

– The critically important factor in getting renewables to be a dominant rather than a niche source of electricity is storage. The fundamental problem of electricity markets is that supply and demand have to meet in real time, and for all intents and purposes it cannot be stored. Currently, the only utility-scale method to store electricity economically is to pump water into hydro reservoirs. That option quite obviously only exists where there are large hydro dams.

– The current lack of economical battery technology is not for lack of trying. The enormous value that would be created by such technology has been well known for decades, and there have always been people pursuing it. Within the electric power industry, fuel cells and batteries are infamous for being “3 years away” for 40 years. Can Elon Musk succeed where everyone else has failed? Hopefully he can, but when it comes to batteries history says one should not simply assume any known problem can be solved with new tech and manufacturing scale.

– The key problem with making battery technology (and CAES as well) economical is not the mechanical efficiency (i.e. energy lost in the storage process), nor is it the rate at which such technologies can push energy onto the grid. The key problem is the total quantity of energy that can be roundtripped, i.e. energy density. I’ve personally looked at CAES deals in which you could get a very nice amount of MW, but only for 90 minutes. That really crushes the economics of a project. Batteries have a similar problem. Batteries at least have the potential to get cheaper based on manufacturing scale, but CAES does not have this benefit.

– Levelized cost of energy calculations are very, very tricky to do because they are highly sensitive to their assumptions about usage rate. At $3.50/mmbtu an efficient natural gas plant will have a short-run marginal cost around $25-27/MWh, and a peaker is around $32-35. The difference between that and the LCOE is how many MWh you are amortizing the capital costs over, and at what interest rate.

– Even if/when solar becomes cheaper on an LCOE basis than ccgt natural gas, one should not go and assume the entire grid will change over rapidly. LCOE is a forward looking measure, and is not strictly relevant for existing installed capacity. Existing installed capacity is sunk cost and will not get retired unless it becomes uneconomic on a going-forward basis.

– Once should not use PPA prices as a direct measure of production cost. They are a measure of market price. Obviously the project developer beleives their cost to be below the market price, but just because a 2009 PPA was X and a 2014 PPA was Y does not at all mean that costs have gone from Y to X. They have gone from “some level below Y” to “some level below X”

– It’s important to understand the huge difference between wholesale and retail electricity. Depending on where you live, The energy cost is really only 50-60% of what you’re paying for on your utility bill. The rest is the wires (and sometimes 10% is assorted BS fees). Electric transmission is expensive. This is a positive for residential solar, but a big negative for wind. Wind generators have thus far succeeded in getting grid operators to build transmission for them and socializing the cost, but going forward the tolerance for that has dropped substantially, especially now that wind variability is reaching the point of puttin g a lot of stress on the grid.

– The retail-level load curve you use in your linked post may be reasonably accurate for Germany, but it is not even close to what a US residential load curve looks like, especially anywhere in the Sunbelt. A/C’s create much more day/night variability in the US. The other thing about Germany is that power prices there are 2-3x what they are in the US. Recent German energy policy has been a giant boondoggle, and has gone a long way towards hurting European manufacturing competitiveness vs the US (not to mention brutalizing ratepayers). Italy is a similar story. Renewable/alternative energy sources will become economic there long before they get there in the US because of how outrageously expensive (by US standards) power is there.

150 bruce May 21, 2015 at 5:58 pm

+1

151 jc May 21, 2015 at 6:30 pm

Excellent. Thank-you.

I had not heard the point about German energy policy hurting the European economy but it makes huge sense – bad electricity policy has certainly hurt the economy in Ontario, Canada.

152 prior_approval May 22, 2015 at 1:29 am

I thoroughly agree – see below.

153 ElamBend May 21, 2015 at 7:02 pm

This is why you gotta read the comment section.

154 Steve Sailer May 21, 2015 at 7:09 pm

Thanks.

One thing I’ve noticed is that windmills are ugly, which makes them more popular in environmentalist theory than in reality — e.g., all the troubles getting windmills built in places frequented by rich environmentalist liberals like Martha’s Vineyard.

Is any progress being made on making windmills look less vicious? If you could sacrifice 5% of the efficiency to make them look more benign, that might make them a lot easier to install along seacoasts and other places with strong environmental lobbies.

155 JC May 21, 2015 at 7:37 pm

Maybe they should paint them to look like giant trees …

156 ezra abrams May 22, 2015 at 1:03 pm

This is a red herring
First of all, a lot of people use Cape Cod, many middle class people were in the proposed line of sight for cape wind
Second, if you have a lot of land and ocean, wouldn’t you choose low impact areas (N Dak, well off shore) as your sites ?
These early adopters are trying to save money with sites that affect people; naturally enough people fight back

ie, when someone complains that NIMBY is bad,m what they are really saying is that I want someone else to suffer so I can have something; I want someone else to loose their backyard to an interstate so I can go to the beach

NIMBY is *good*;’ people who complain about nimby are selfish

157 Hazel Meade May 21, 2015 at 8:34 pm

The retards are in control in Europe with respect to both nuclear power and GMOs. Germany shutdown all of it’s nuclear plants after Fukushima, which is the main thing they did wrong.

158 prior_approval May 22, 2015 at 12:47 am

Um, in December, windpower generated more electricity than the still running nuclear power plants here. Further, Germany has been a net energy exporter – even while shutting down nuclear plants – for several years.

The German windpower industry is seen as a major export winner, and the solar installation business has provided a lot of work. And when Aldi, a discounter that make Walmart look like a bloated whale, decides that major solar installations on each store roof makes profitable business sense, then one might just begin to think that the people with the largest problem with the Energiewende are the major energy companies – who continue to lose billions each year.

159 Hazel Meade May 22, 2015 at 9:16 am

The lost nuclear has been replaced by increased reliance on coal. So how is this a positive for the environment? Braying about the fact that they increased wind-power production doesn’t negate the net increase in carbon emissions.

It’s almost as if you hate nuclear power more than you hate climate change.

160 prior_approval May 22, 2015 at 1:29 am

‘in getting renewables to be a dominant rather than a niche source of electricity is storage.’

Pumped storage already exists. It was built in past decades to handle the problem of peak demand compared to baseload – when using nuclear power. The pumps don’t care where the electricity comes from – ‘The Bath County Pumped Storage Station is a pumped storage hydroelectric power plant, which is described as the “largest battery in the world”,[2] with a generation capacity of 3,003 MW[3] The station is located in the northern corner of Bath County, Virginia, on the southeast side of the Eastern Continental Divide, which forms this section of the border between Virginia and West Virginia. The station consists of two reservoirs separated by about 1,260 feet (380 m) in elevation. It is the largest pumped-storage power station in the world.’ http://en.wikipedia.org/wiki/Bath_County_Pumped_Storage_Station

‘The current lack of economical battery technology is not for lack of trying.’

See above for how large scale ‘battery’ technology is both economical and available.

‘The key problem is the total quantity of energy that can be roundtripped, i.e. energy density.’

Well, as an analyst, maybe you can start with this – ‘Pumped storage is the largest-capacity form of grid energy storage available, and, as of March 2012, the Electric Power Research Institute (EPRI) reports that PSH accounts for more than 99% of bulk storage capacity worldwide, representing around 127,000 MW.’ http://en.wikipedia.org/wiki/Pumped-storage_hydroelectricity

‘It’s important to understand the huge difference between wholesale and retail electricity.’

As noticed in this thread.

‘has gone a long way towards hurting European manufacturing competitiveness’

Seriously, do you realize just how hilarious that sounds from a German perspective? Immelt wasn’t even vaguely accurate when talking about ‘expensive’ German electricity for industry, neither in the price he quoted nor the reality that German industrial customers pay less for electricity than American ones (see above about the point about retail and wholesale again).

But then, Germany’s manufacturing competitiveness is just one of those things that Americans, with their strong dollar (and truly, Germany’s manufacturing companies pray every single day that Americans continue to remain so deluded), seem to ignore when discussing the Energiewende. Except when being inaccurate – and the French, with their 85% nuclear generated electricity, are also laughing at the idea that ‘renewables’ are hurting French manufacturing.

‘not to mention brutalizing ratepayers’

Again, wholesale/retail – it is a very important distinction, the sort that energy market analysts and those deciding where to place energy intensive industries look at.

161 Plucky May 22, 2015 at 1:46 pm

One of the nice things about doing energy analysis professionally is having access to better sources than wikipedia. I am very much aware of the existence of pumped storage. My point about pumped storage is a) In the grand scheme of things it is a small proportion of the grid and b) it can’t become a much larger mix because it’s already a standard feature of a hydro dam and there are extremly few potential new sites. Furthermore, that EPRI stat confirms what I said- as of today it’s essentially the only game in town for electricity storage. In the specific case of Bath County, while it’s listed at a nominal 3000 MW capacity, it typically operates in the 800-1,000 MW range. A sense of proportion is also important- it’s the only major pumped storage facility in PJM, and a typical afternoon load for PJM can be ~120,000 MW.

The vast majority of hydro resources are in the West- WA/OR/CA/NV. Pumped storage plays a bigger role their, but the other thing one has to keep in mind about hydro dams is that they serve a lot of masters- while electricity generation is their revenue generator, their operations are also constrained by the needs of hydrological management, everything from agriculture to salmon runs has a claim on hydro operations. The main point is that hydro and pumped storage is nice and great where you can get it, but it is a highly limited resource. East of the Rocky Mountains, the only hydro of any note is what comes from Niagara and what NY & New England import from Quebec.

When it comes to battery technology not being there yet, the author concedes as much in the present tense, as does the Brattle study ONCOR commissioned the author linked in his longer battery post on his site- they determined that batteries would only be net beneficial at a lower cost in the future, but also that the net benefit was slim enough that it had to rely on ~40% if the benefits being uncapturable by a merchant operator. In their own words:

“However, while beneficial from an integrated, system-wide perspective, an efficient scale of storage deployment would not be reached if deployed solely by merchant developers in the wholesale market, by retail customers, or only for capturing T&D benefits.
Storage investments could not be undertaken at an efficient scale solely by merchant developers in the Texas restructured electricity market because the value that a merchant storage developer can capture and monetize through transacting in the wholesale power market alone is too low compared to costs. For instance, we find that approximately 30–40% of the total system-wide benefits of storage investments are associated with reliability, transmission, and distribution functions that are not reflected in wholesale market prices and, therefore, cannot be captured by merchant storage investors. Even at the low projected storage costs, the opportunity to arbitrage wholesale power market prices and sell ancillary services would not likely attract merchant storage investments at a significant scale. ”

That they came to this conclusion in a study sponsored by ONCOR should warrant a bit of skepticism- it essentially says “Batteries are great, but not so great that the make economics sense to a merchant developer.” The doesn’t-need-to-be-stated logical conclusion of that line of thought is, “That means the PUC should let ONCOR build a bunch of them and naturally roll them into its rate base”. That ONCOR commisioned a study coming to that conclusion means the study should be read skeptically as a lobbying/marketing pitch by ONCOR to the Texas PUC. That doesn’t make it wrong, but it does mean one should not consider it authoritative. That the case for batteries at a future lower cost can be made plausibly does mean means that the extent to which batteries are unecomic is probably only a factor of 2 rather than an order of magnitude, though.

162 Michael Cain May 23, 2015 at 5:39 pm

Your points have even more impact when the three almost entirely independent US power grids are considered. The Western Interconnect has renewable resources that have both resource diversity and geographic diversity, plus sites suitable for very large scale pumped hydro storage. There are only one or two arrangements for the HVDC grid needed to help balance all those sources and deliver to the small number of major demand centers. These points are particularly important when the size of the resources is compared to the total demand. The Texas Interconnect has less resource and geographic diversity, small possibilities for hydro storage, but an even smaller number of major demand centers. The Eastern Interconnect has very small high-quality renewable resources relative to total demand, and the grid design problem is a nightmare.

The Texas and Western Interconnects have historically also been very rich in coal and natural gas relative to their total demand. This goes a long way to explaining why Texas has four power reactors, the Western has six still operating (but at least two likely to close down within a decade), and the Eastern has 90-some.

163 EnerGeoPolitics May 21, 2015 at 5:37 pm

Renewables aren’t really renewable, though, are they? Renewable energy requires storage, and storage requires the mining of lithium, tellurium, indium, etc. Technological innovation will allow for the substitution of some elements, but the fact remains that renewable energy is still dependent on extraction and extraction prices will gradually increase as the easy-to-mine stuff gets used up, just as it has with fossil fuels.

The real issue with renewables is not the price,it is the energy returned on energy invested. when you factor in the amount of energy needed to create storage, neither solar nor wind are close to competing with fossil fuels. That may not always be the case but it doesn’t seem imminent. High per capita energy use is the basis of contemporary Western civilization and any significant decline in EROEI will also mean a decline of civilization. That point of view is controversial, to be sure, but personally, I am more interested in watching EROEI values than price per MWh

164 Hazel Meade May 21, 2015 at 8:01 pm

I wonder if there is someway to recycle Li-Ion batteries and recover the lithium. Some way that is cheaper than mining and refining fresh stuff.

165 Alan May 22, 2015 at 2:06 am

This can’t possibly be true: God loves coal.

166 ezra abrams May 22, 2015 at 1:00 pm

as a liberal who has been saying for years that solar and wind are a good idea, do i deserve an apology from all the rude people who said i was an idiot, solar was $, there are insurmountable storage issues, unlimited fusion is around the corner…

probably not, cause i was lucky; I don’t actually know anything about this
well, I do: I know that technology can often make things cheap, and that the trillion dollar investment in silicon techonology can be leveraged for solar, so it was reasonable to expect price drops

PS: iirc, coal miner is the most dangerous job in america, and probably one of the dirtiest and unhealthiest
why on earth would anyone want their kid to be a coal miner ?
things must be *really* bad when coal miner is a good job

167 Floccina May 22, 2015 at 4:41 pm

Both sides are usually wrong on issues like this. When greenies say, we must switch immediately to renewables or we will ruin the plant, it is about equivalent to , if we switch to renewables we will be driven into economic ruin.

For example even with good lead acid batteries we could get a 50 mile range, that would not kill us on the other hand neither are the current levels of air pollution so bad.

It is so bad on both sides it is very difficult to know who to believe.

@ezra abrams as a liberal do you think Paul Erlich and club of Rome own an apology to the world and especially to Chinese would be mother forced to have abortions? And how about to the great Julian Simon?

168 Whatever May 22, 2015 at 7:52 pm

list of stuff
– stuff
– more stuff
– even more.

List of stuff with
– stuff

– more stuff

– even more stuff

list of stuff with html breaks
– stuff
– more stuff
– even more stuff

it works

169 ElamBend May 26, 2015 at 5:38 pm

you forgot [miracle occurs here]

170 Homple May 24, 2015 at 1:11 am

“Well, if they paid for their externalties, perhaps”, says Agra Blum.

And how much are these externalities worth? Why, as much as those who dislike petroleum say they are, of course.

171 Ronald Brak May 24, 2015 at 10:59 pm

The extermnality cost of a tonne of CO2 emitted from burning fossil fuels is equal to the cost of removing a tonne of CO2 from the atmosphere and sequestering it. Of course, where it is cheaper to reduce emissions, that will be done first. Given the low and decreasing cost of renewables, I suspect a carbon price of $70 a tonne would be sufficient for the earth to go carbon neutral. Epidemiologists also have a decent idea of the cost of adverse fossil fuel effects from so they could provide estimates of the health costs of burning fossil fuels.

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