In a previous post, I talked about how transitioning to clean power generation over the next decade and a half will pose challenges that are more political than logistical. I focused on the closing of existing plants in that post, but now I would like to delve into the cost of building clean energy, and how this cost compares to the cost of the existing fossil fuel infrastructure. One company that compares relative costs is the financial advisement firm Lazard. Lazard issues a report on the levelized cost of energy every November. The November 2020 publication includes updates on the price of coal, gas, solar, wind, and nuclear, and also has a section on the cost of battery storage.
Let's begin by looking at the very first graph, which lists the price of different forms of energy generation in units of dollars per megawatt-hour (MWh). The price of rooftop residential solar ranges from $150-$227/MWh, while the price of rooftop commercial and industrial solar ranges from $74-$179/MWh. These costs are actually pretty high, but the cost of utility scale solar range is only from $31-$42 per megawatt hour. The big difference comes simply from the economy of scale; the larger the assemblage of panels, the cheaper the cost per unit energy. Wind power ranges from $26-$54/MWh. The orange diamond that says $86/MWh corresponds to offshore wind. So wind is cheaper than solar in some places but more expensive in others. Offshore wind is noticeably more expensive than land-based wind, but it came down by $3 MWh relative to 2019 and could still be a very important contributor to the energy sector in coming years if the price continues to drop, or if the available land for generating energy is insufficient.
How do these costs compare with more conventional forms of energy? Coal ranges from $65-$159/MWh. This is generally more expensive than utility-scale solar or wind. But this is the cost of constructing new coal plants, compared to the cost of constructing new solar farms or new windmills. Notice, however, the orange diamond that says $41/MWh. That's the cost of generating energy from a coal plant once the cost of the plant’s construction has been accounted for. So on one hand, you do still need to consider the cost of stranding an operational coal plant. But I discussed this in the previous post post, and the cost is actually fairly manageable. On the other hand, there are plenty of places where it would save money – right now – to replace the existing coal plant with a solar or wind farm. That is an important factor to keep in consideration when deciding which coal plants to retire first, and how quickly. Natural gas, looking specifically at the combined cycle, ranges from $44-$73/MWh. This is cheaper than coal, in continuation of a trend that's been going on for a decade. New gas plants are mostly more expensive than new solar and wind farms. But again, a rapid transition to clean energy will require replacing existing operational plants.
That brings us to nuclear power. The cost of new nuclear power ranges from $129-$198/MWh. If you scroll down four graphs to the unsubsidized levelized cost of storage, you'll see that wholesale photovoltaics plus storage costs $81-$140/MWh. In other words, building a solar farm with battery storage today will generally cost quite a bit less per energy generated than building a new nuclear plant will. This does not bode well for nuclear power as a means of providing clean energy in the future. But if you go back to the first graph and look at the diamond next to nuclear power, you'll see that nuclear power costs $29/MWh when you subtract the cost to build the plant. So nuclear plants are the most expensive power plants to build, but they’re actually cheap to maintain. This suggests that existing nuclear power plants have a role to play in providing clean energy today. Many of these plants are struggling, however, because it is very difficult for them to provide energy at a competitive price right now while the cost of construction is still being paid off. And a small number of plants, most notably Indian Point in upstate New York, have reached a point where it would take a major, costly structural overhaul to keep them running. But for the time being at least, existing nuclear plants are the cheapest source of zero-emission, non-intermittent energy. The current administration has expressed a willingness to support taxpayer subsidies for existing nuclear plants to keep them from closing. I think this is sensible, even if the burden of proof is now squarely on the nuclear industry where future energy generation is concerned.
To be fair, it’s important to acknowledge that intermittency (the inability of solar and wind farms to generate power at a constant rate) will require the introduction of a significant amount of battery storage as renewables gain a greater share of power generation. The timing of this matters, as the cost of battery storage remains high but is heading downward. Lazard estimated the cost of wholesale photovoltaics plus storage to be $102-$139/MWh in 2019 and $108-$140/MWh in 2018. So the trend is in the right direction, but work needs to be done and time is short. It’s important to get a real sense of how much battery storage will be needed and when as the energy market transitions. A little bit of smart planning could make a huge difference in the overall cost of the clean energy transition.
So, from the perspective of somebody who believes that the climate crisis necessitates cleaning up all our energy use as quickly as possible, what should we do with this information? I think the first step should be to declare a moratorium on the construction of any new power plants that emit any carbon dioxide. This may sound controversial, but it's easily defensible given current energy economics. Second, I think you can tip the markets in favor of cleaner energy by removing the subsidies on fossil fuels and replacing them with a carbon tax. To avoid some serious economic and political risks, the tax would have to be balanced by a dividend so that it is revenue neutral. That means, however, that the revenue necessary to clean up power generation would have to come from other sources. I’ve already said in a few places that the Biden Administration will need to walk a tightrope to make this happen the right way. But they can do this if they are smart.
(For updates on new posts, please click the "Follow" button.)
No comments:
Post a Comment