Clean Power

Published on May 15th, 2016 | by Guest Contributor

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Debunking 4 Myths About The Clean Energy Transition, Part 3: Renewable Costs

May 15th, 2016 by  

This is part 3 of a 4-part series — see also Myth #1: The Duck Curve limits renewables integration, Myth #2: Excess renewables must be curtailed or stored, and Myth #4: Natural gas is the main reason for decreased emissions.

By Robbie Orvis, Michael O’Boyle, and Hallie Kennan of Energy Innovation

America’s electric system is at a stark inflection point: coal power plants are operating at all-time lows with growing retirements, natural gas prices are at historical lows while power generation is rising, electricity sales are flattening, extreme weather events are forcing more resilient infrastructure, and plunging renewable energy prices have made low- or zero-carbon sources cost-competitive with conventional fuel sources.

Rapidly reducing greenhouse gas emissions from the electricity sector is now possible without radically disrupting grid operations, costs, or reliability. But the grid will require a more substantial transformation as we rely on higher shares of variable renewable generation. Some critics argue technological, financial, and institutional barriers will prevent significant decarbonization in the electricity sector, or will drive up the costs at the very least. But four common clean energy myths are easily debunked by facts and experience that show a low-carbon energy future is possible without sacrificing affordable, reliable service.

Myth #3: Clean Energy Is More Expensive Than Fossil Fuels

Reality One: Reported renewables costs are often outdated and projections are often underestimated

Outdated data or highly conservative cost assumptions for energy sources also tarnish renewable energy’s reputation as a cost-effective option for decarbonization. Innovation in renewables, battery storage, and other technologies is occurring at a breakneck pace, and the newest capacity and price data are often underestimated or aren’t released quickly enough to accurately inform important decisions by policymakers or grid operators.

For example, the National Renewable Energy Laboratory’s (NREL) 2012 Renewable Electricity Futures study showed that moving to 80% renewable energy by 2050 was technically feasible with moderate cost increases under conservative technology improvement assumptions. A 2014 update to the study found its most ambitious estimates for cost reductions by 2050 had already been reached in the real world in 2014, meaning the same study produced zero cost increases when using today’s actual data.

JP Morgan’s Brave New World report falls victim to this fallacy by relying on outdated costs for solar in the vast majority of its scenarios. Its Current Costs scenario models solar photovoltaic costs at $2.25/watt-AC for projects delivered in 2016–2018. However, US prices recorded in Q3 2015 are already 12–23% below this, and Germany’s prices are even lower. Rather than projecting cost declines as part of the current trajectory, their study mistakenly assumes costs will stay fixed to 2050. Analyses must use up-to-date costs and reasonable price projections to properly inform power sector decision-makers.

Reality Two: Customer bills decrease, and that is what matters

Energy efficiency cost savingsOne of the most commonly held myths about a low-carbon transition is that a high penetration of renewables costs electricity customers more money. This myth stems from looking at electricity rates ($/kWh) rather than electricity bills ($ for service), which are what ultimately matters to customers. Focusing on rates instead of bills fails to account for energy efficiency improvements and load changes, both of which reduce the actual price customers pay for reliable service.

To understand total system costs, it is important to look at the cost of generation as well as the total number of customers and total amount of demand. For instance, even though California has a relatively high electricity rate, its customers have some of the lowest bills in the country, thanks in part to aggressive energy efficiency policies the state has pursued. In many cases, efficiency measures lowering energy consumption can offset any increase in rates, lowering electricity bills overall.

It is true that expensive feed-in tariffs and early subsidies for renewable energy come with a net cost, but the era of paying a large premium for renewable energy is essentially over. Renewable energy is increasingly beating existing fossil fuel–fired generation on price alone. For example, when Colorado issued a request for proposals to replace 900 MW of coal-fired generation with renewable sources in 2013, over 6 GW responded and the winning bids were lower than the average price of generation, bringing down the cost of energy and saving Colorado customers money.

Palo Alto’s municipal utility recently approved a purchase power agreement for utility-scale solar at $0.037/kWh, which is below the average levelized cost of electricity for natural gas and coal. This counters the recent threat by National Association of Regulatory Utility Commissioners President Travis Kavulla that renewable energy will raise costs and enrich utilities. As state and federal policies provide consistent demand for greater renewables deployment, costs will continue to fall.

Furthermore, these low prices carry through to wholesale markets, where adding renewable energy lowers prices, making electricity cheaper on average and creating savings for customers.

Increased renewables penetration can also help lower the costs of uncertain fuel prices consumers are forced to pay. Fuel-based energy sources like natural gas or coal are vulnerable to price fluctuations, and utilities generally pass these costs through to their customers, exposing them to price volatility. Even if fuel costs are low for a time, price uncertainty is expensive since a large rise or fall can have wide-scale ripple effects throughout the economy, affecting business investments and consumer spending. A high penetration of renewables, which have zero fuel costs, helps to eliminate this volatility.

Pulling It All Together

Accurately estimating the cost of electricity sector decarbonization is undoubtedly a difficult endeavor because of rapid cost declines, myriad technologies, market operations, and other nuances. Institutional inertia favoring an outdated system further clouds this picture.

Nevertheless, it is increasingly clear that today’s available technologies and options can successfully decarbonize the electric sector. In order to cost-effectively achieve the goals many states and countries have laid out, policymakers must have the best available information, and use it to guide policymaking.

Moreover, today’s economy is extraordinarily favorable for investment in renewable resources to make the leap policymakers know is necessary to avoid catastrophic climate effects. Low natural gas prices and the proliferation of energy efficiency technologies mean that utility bills will be kept low, providing a cushion for early investment in renewable resources. The cost of money is at an historic low, encouraging renewable developers to invest. And finally, federal tax incentives for solar and wind power are at peak levels.

Avoiding these four common myths about decarbonizing the power sector can help guide analysts and policymakers toward the solutions needed to reach an affordable, reliable, clean energy future.


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  • Epicurus

    If we had a decent Fourth Estate, the fact that renewables are now cheaper than fossil fuels would be constant front page news.

    • Bob_Wallace

      We have to be the Fourth Estate. You, me and everyone else who has the facts and gives a damn.

      Look for ways to educate others.

      • Epicurus

        Yes, Bob, but imagine how well we could do if we had a major news outlet like CNN or a newspaper chain.

        • Bob_Wallace

          Well, we don’t have one so I guess we’ll just have to make the effort to get the message in other people’s papers.

        • Coley

          One way forward would be to swamp the comments section on Christopher Bookers column on the Sunday Telegraph,
          It’s odd, he’s usually spot on regarding Social Services and EU issues but his rabid dislike of renewables is unbelievable, esp wind,
          Bit sad really.

      • Coley

        Been doing this for years Bob, but when I can get the same enthusiasm going for the environment as the football bore can generate? then I think I am getting somewhere-;)

  • Luminext

    There’s a lot of bias when renewable facts are presented. In some cases even same data are interpreted differently. Still, the renewable energy industry is on the rise, so regardless of how data are presented, renewable technology can only become more competitive and cost-effective.

  • plainview2

    Pulling it all together:
    When will the residential ratepayer realize the cost savings on their monthly bill?
    The taxpayer bails out all the “too big to fail” financial entities.
    The utilities pass all variables and externalities to the ratepayer insuring ROI for the investor.
    When will the ratepayer realize a new financial paradigm monthly power bill; or is it our lot to be satisfied with clean air and empty pockets?
    Rate payers need to call BS and demand what happens when production prices go negative.
    Let’s socialize a benefit for a change.

    • Epicurus

      The concept of the regulated utility whereby an investor owned corporation is granted a monopoly and guaranteed a certain rate of return is the biggest consumer rip-off ever conceived.

    • Bob_Wallace

      I expect we’ll see rates start to fall when solar gets closer above 5% of total generation. That should be enough to knock back the most expensive peaker sources.

      What we’ve seen to date is that states with a lot of wind on their grids have enjoyed lower rate increases than other states.

  • Epicurus

    “National Association of Regulatory Utility Commissioners President
    Travis Kavulla [said] that renewable energy will raise costs and enrich
    utilities.”

    How does someone this ill-informed keep his job?

    • Coley

      Well stuffed brown envelopes-;)
      And a guarantee of a well paid executive position once he retires from his present role?
      Though if I was him, I would be looking at said ‘guarantees’
      In the present climate Peabody et al will be looking at money saving measures and lobbyists for a lost cause will probably feature highly in head count reductions-;)

  • MacMiro

    it is well known, that a sun and wind energy is volatile, they provide energy not for 24 hours a day. Looking at sun and wind LCOE is like offering the lowest price to drive you from city A to city B, but, due to lack of sun and wind, get you out of car somewhere between these cities.

    • Matt

      Please see the RMI study that breaks the electric use of each state into 5 min history data and shows how each can be 100%. It has been here multiple times. So either you are new, don’t read back ground, or troll

      • MacMiro

        yes, you are right, I am troll

        • Bob_Wallace

          At least ignorant.

    • eveee

      It’s not 100% wind and solar. That’s a straw man. There are hydro, geothermal, biomass, and concentrating solar with thermal storage. The costs of storage are dropping, but the need is exaggerated. For example, Germany doesn’t think it needs any until renewable integration exceeds 60%.

      In a 2012 study, NRELs Future study found a mix of 50% wind and solar, 30% dispatchable renewables like hydro, geothermal, and biomass, US could reach 80% to renewables by 2050.
      http://cleantechnica.com/2015/04/13/80-renewables-by-2050-in-us-says-nrel/

      Given the large amount of reserves and flexible gas generation, variable renewables can be integrated easily with existing generation. Up to 40% with no changes to existing grid.
      All generation needs reserves for unplanned outages and inflexible coal and nuclear need gas peakers to follow daily and seasonal load variation. In fact wind and solar need not require these in existing grids, because they are already available. These so called integration costs are lower for wind than conventional sources.

      ” Studies show nuclear and large fossil plants actually have “far higher integration costs than renewables, ”

      http://www.greentechmedia.com/articles/read/Grid-Integration-of-Wind-and-Solar-is-Cheap

      • MacMiro

        nothing is older than yesterday’s newspapers..
        Each yesterday study showes that the day before study is not valid anymore, and so on…
        Studies are mothers of your wishes…

        • eveee

          huh?

          • MacMiro

            Think twice, write once.

        • Bob_Wallace

          That’s a pretty dumb comment. It’s the sort of thing one would hear from someone who has bumped up against an inconvenient fact.

    • AltairIV

      No, solar and wind energy are not volatile. They’re intermittent. And the conditions under which intermittency occurs, and the means to handle it, have been well understood since pretty much the beginning.

      As much as people argue about it, I personally see no big challenges in transitioning to a renewable infrastructure. It all really boils down to just three things; 1) having enough generating capacity to meet demand, plus a reasonable safety margin, and 2) having reliable mechanisms in place for getting the energy from where and when it is produced to where and when it is used, and 3) making sure it can be done in an economically viable way. The last point being the focus of this article.

      The best thing is, we have all the technology we need to do this already. The grid of the future will be built from a mix of wind, solar (local and commercial) and other sources, combined with various storage, transmission, and active demand management technologies. We don’t even really need to plan it all out in detail. Market forces will decide what mixes work best in any given region. All we need is the will to make it happen.

    • Ross

      Assuming for a moment that that straw man was a problem there was no adequate answer to what implication do you wish us to draw? That we should continue to burn fossil fuels?

      • Coley

        No reply, thons a surprise-;)

  • JamesWimberley

    Of the three “myths” challenged so far in this series, this is the first that is plain wrong. Curtailment is basically true, but a so-what. The duck curve is also real, but a manageable problem. Given this, the post is weak and fails to make the needed demolition. I would have cited the IPCC, Citi, Lazards, and the OECD estimate of the dollar health costs of air pollution.

    Nor does the post deal with the objection of the slightly better informed, that renewables have high grid integration costs, which are not considered in the LCOE. (Short answer: the costs are real but apply to every type of generation, lowest for geothermal, highest for wind; they are reduced by diversity of the mix; they are low at current penetrations; by the time they become a significant cost, renewables will be far below current prices, so they will still come out ahead overall.)

    • Epicurus

      If I recall correctly, the Harvard study estimated that the price of coal generated electricity would have to be at least $.23/kWh to pay for the health care costs alone–far from competitive with Palo Alto’s solar contract at less than $0.04/kWh.

      Free market worshippers seem to think fossil fuel producers and users are entitled to socialize their pollution costs. Apparently, that’s just the way Jesus created the free market (right after he finished writing the Constitution).

      • JamesWimberley

        Polemically, it is worth separating the health costs from the other externalities. It’s cognitively easier to write off distant polar bears, coral reefs and Bangladeshi delta farmers than it is to deny the asthma of your neighbour’s child, or yours. I have yet to come across a true denialist of air pollution damage.

        • Epicurus

          Right. The health care cost of fossil fuel use is the only way to argue for clean energy with delusional red state right wingers, but getting them to care about another person’s child is still difficult. Empathy is as rare among them as is high IQ.

          • John Moore

            !!!

          • super390

            Here’s where all the arguments are headed:

            [One part of the 2008 agreement, which proposed a $6.6 million budget to be funded by the Charles Koch Foundation and unnamed “Donor Partners,” established a “Program for Excellence in Economic Education” within the Gus A. Stavros Center for the Advancement of Free Enterprise and Economic Education…

            The Stavros Center promotes “Common Sense Economics,” a free-market-focused book coauthored by the director of the Stavros Center, James Gwartney, and accompanying course materials for economics teachers all the way down to the kindergarten level. The center, along with programs at other colleges and universities, hosts workshops for teachers who want to offer Common Sense Economics courses at their schools.

            Under “Readings Reflective of Common Sense” on the “Fun Readings” page of the Common Sense Economics website, one probably not-so-fun selection sticks out. “Sacrificing Lives for Profits,” written by Common Sense Economics coauthor Dwight Lee, actually argues that we’d all be better off if companies cut corners, even risking customers’ lives, in the name of profit:

            “The charge that sways juries and offends public sensitivities … is that greedy corporations sacrifice human lives to increase their profits. Is this charge true? Of course it is. But this isn’t a criticism of corporations; rather it is a reflection of the proper functioning of a market economy. Corporations routinely sacrifice the lives of some of their customers to increase profits, and we are all better off because they do. That’s right, we are lucky to live in an economy that allows corporations to increase profits by intentionally selling products less safe than could be produced. The desirability of sacrificing lives for profits may not be as comforting as milk, cookies and a bedtime story, but it follows directly from a reality we cannot wish away.”

            Lee gives the example of expensive safety features in cars. With cheaper, less safe cars, he argues, consumers would be free to spend more money on (overpriced) education and (overpriced) health care…]

          • Epicurus

            I would love to hear how they argue in favor of filthy air and why it’s a good thing people’s lives are cut short as a result.

          • Epicurus

            There’s a reason all these “common sense” free market fundamentalists deny the existence of anthropogenic climate change, and I suspect it is purely ideological/religious. In their worldview, it is impossible for voluntary economic activity to result in the destruction of the world their god created.

          • Coley

            And the US govt allows this absolute bollocks to be taught in schools?

          • SeaCorey

            Increasingly school curriculum (like everything else over here) is a product of corporate lobbying.
            Similarly, it’s been several years since it was announced that pizza satisfies the vegetable requirement in school lunches because there’s (supposedly..) some tomato sauce on it…

    • Bob_Wallace

      “Very large quantities of wind are being used by several grid operators with virtually no increase in the need for operating reserves,” AWEA Transmission Policy Manager Michael Goggin. “The Midwest System Operator (MISO) has over twelve gigawatts. The Electric Reliability Council of Texas (ERCOT) has over ten gigawatts. Xcel Energy subsidiary Public Service Company of Colorado (PSCo) has had well over 50 percent wind at times.

      Renewables opponents, Goggin recalled, “have said for years that costs would go up and the grid would fall apart. They have been proven wrong.”

      In ERCOT’s calculations for 2011, Goggin said, “the total cost for integrating wind came out at about $0.50 per megawatt-hour.” And, he added, without 2011’s anomalies in July and August that accounted for 80 percent percent of all costs, the total costs in 2012 for the necessary balancing reserves and other expenses associated with the integration of large amounts of wind are expected to be even lower.”

      “Studies show nuclear and large fossil plants actually have “far higher integration costs than renewables,” Goggin said. “Contingency reserves, the super-fast acting energy reserve supply required of grid operators in case a large power plant shuts down unexpectedly, are a major cost. Comparing the incremental cost of wind to those costs that ratepayers have always paid, the wind cost looks even more trivial.”

      The fundamental issues are more or less the same with integrating solar, Goggin, who specializes in wind, said. “Relative to wind, solar has more minute-to-minute variability, which increases the cost. But forecasting the sun is easier because it is clear when the sun will come up and go down and when the peak is, and that reduces the cost. But grid operators who use efficient operating methods are finding it is no more of a challenge or cost than wind.”

      http://www.greentechmedia.com/articles/read/Grid-Integration-of-Wind-and-Solar-is-Cheap

      $0.50/MWh is $0.0005/kWh which is about nothing.

      • JamesWimberley

        Yes. The secret weapons of wind and solar in grid integration are numbers and forecasting. Suppose the chance of a 1-GW coal power plant having an unplanned outage in a 24-hour period is 1 in 1000. Suppose – counterfactually – that wind turbines are only a tenth as reliable, with a similar individual breakdown risk of 1 in 100. You have 1500 2-MW turbines at a 33% capacity factor, together equal to the coal plant, with mean output also of 1 GW. The chance of losing all of it by simultaneous mechanical failure is 0.01^1500 .. well, my spreadsheet won’t display a number so small. At the 0.001 risk of the coal plant, the equivalent risk to the wind fleet is losing 10 turbines simultaneously, or 20 average MW. The amount of spinning reserve needed, at equal risk, will be 1/50th of that of the coal plant. For solar, the comparable unit is a string in a utility solar farm, say 1 MW. The calculation will give similar results.

        Ah they say, “but the wind doesn’t always blow” etc. But you know this is going to happen. Day-ahead forecasting is highly accurate. So a grid manager can plan to bring cold reserves (or imports or demand response) online in good time to cope with the expected variations. These solutions are much cheaper than spinning reserves.

        • eveee

          Good point. The reader needs to understand first that the power system is composed of dozens of different sources of various types and the System operator plans which ones will be used to meet forecast load and that the selection may change as sources bid the lowest prices. This energy wholesale market responds to demand. At summer annual peak there must still be excess reserves available in case of sudden failure. During the rest of the year, more excess reserve is available for variation. That’s why up to 40% wind can be integrated with little change to the grid.

        • Coley

          It might be a flat calm in Northumberland but blowing a gale in the Scottish Highlands just a couple of hundred miles away, the same scenario could easily be repeated in every land mass, but take into consideration the practically constant offshore wind and the deniers are left without a leg to stand on,.
          Though they, no doubt, will bring up the once in a hundred years flat calm affecting the whole of the UK in 18 blankety blank-;)

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