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« Klein babble | Main | Antarctic confusion »
Thursday
Sep182014

Calling a bluff

The FT is reporting some new research by investment bank Lazard, which claims that in some parts of the US wind and solar are now cost-competitive with gas fired power.

Costs have fallen and efficiency has risen for solar panels and wind turbines, the investment bank found, to the point that in areas of strong wind or sunshine they can provide electricity more cheaply than fossil fuel plants.

I asked Ed Crooks, the author of the article, whether this wasn't just levelised costs rearing their ugly head again. He confirmed that it is, but argues that the impact of intermittency is low.

There are many imponderables in the calculations here - intermittency affects revenues as well as costs, so the focus on costs is only half of the equation. Moreover, are we talking about gas peaking plant (OCGT) or about CCGT? And how are the externalities imposed on gas fired plant by intermittent renewables factored in?

Crooks is going to a meeting with Lazard later today. I've suggested he ask them if subsidies, feed-in tariffs and so on can be done away with.

That should throw some light on the matter.

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Reader Comments (43)

Impressive Bish. The boardrooms of the elite start to tremble at the simple questions of the blogger from Perth and Kinross.

Sep 18, 2014 at 1:04 PM | Registered CommenterRichard Drake

The question that should be asked is "how much would a consumer be willing to pay for electricity provided by wind and/or solar?", knowing that he would only get it when the weather was right. The answer is nothing. Electricity produced intermittently has no value (unless you are prepared to pay for lots of batteries as well).

Sep 18, 2014 at 1:33 PM | Registered CommenterPhillip Bratby

Similar claims about the viability of renewables recently made by Lord Stern have been challenged by Reiner Grundmann and by Ben Pile.

Sep 18, 2014 at 1:34 PM | Registered CommenterPaul Matthews

Nice try, but according to the Green industry, anything that is not a prohibitive tax on fossil fuels is by definition a 'subsidy'. And so balancing the subsidies to fossil fuels by providing a totally innocent and planet-saving eco incentive is clearly correct and anyone who says otherwise is a climate criminal who doesn't care about our grandchildren!

Sep 18, 2014 at 1:35 PM | Unregistered CommenterFarleyR

Your question may well shed some light on this claim but I doubt that it
will produce much cost effective heat.

Sep 18, 2014 at 1:39 PM | Unregistered Commenterpesadia

Ask them how much they would invest if there were NO subsidies. I think that would clear up any confusion in their minds.

Do stress that it had to be their own money.

Sep 18, 2014 at 2:37 PM | Unregistered CommenterGraeme No.3

'Scuse my ingorance, but I'm not a money man.

I think I know what "levelised costs" means, but can someone give me a simple exposition? My thoughts are the claim that X cash produces Y electricity, therefore renewables are cheap. That is ignoring intermittency/despatchabilty etc.

Help.

Sep 18, 2014 at 2:43 PM | Registered CommenterHector Pascal

The simple exposition of levelized costs is the Present Value of all costs (capital and operating) over the station lifetime, divided by the PV of all energy over that time. Levelized costs are the standard methodology for comparing power costs from different sources. The problem is that the methodology was developed to compare energy sources that were relatively similar in terms of dispatchability - a coal plant versus a gas plant versus storage hydro, for instance. In that comparison, each of the alternatives will have similar availability, and will not require supplementary resources to firm their output (or store it), although you might want to make adjustments for flexibility, ramp time, and so on.

Renewables don't show that same level of reliability - well, they may be reliable (ie, they aren't broken, and *could* run), but they are limited by the wind, level of sunshine, or the amount of water flowing in the river. Proponents make two common errors - first, they over-estimate the amount of energy that will be produced, often ignoring degradation over time, and sometimes just being too optimistic about how windy / sunny / rainy it will be. Second - they ignore the fact that if their plant can't produce, we have to install a reliable backup (or they claim that geographic diversity will solve the problem; it won't), that the grid has to be over-built to accommodate both the renewable resource and the backup (or the multiple renewables required for geographic diversity), and that the backup will generally be a less efficient source than what would otherwise be installed, since it is intended for intermittent use - the canonical example is using SCGTs as back up to wind to produce base load energy, rather than CCGTs, at an efficiency penalty of about 20%

Sep 18, 2014 at 3:23 PM | Unregistered Commenterdcardno

Given that when the sun shines, places and people get hot and turn on air conditioning, which approach would you intuitively take:

- use the sun to make the necessary power to keep inhabitants comfortable?
- use conventional fuels to make that power?
- build better buildings (or retrofit) that need less power to remain comfortable?

Sep 18, 2014 at 3:29 PM | Unregistered CommenterRaff

I don't think it's just me that wants Ed Crooks connected solely and permanently to renewables... The accounting BS that is wheeled out and aimed at decision takers is as corrupt and broken as the claims for actual qty of electrons moved.

Sep 18, 2014 at 3:37 PM | Registered Commentertomo

"I've suggested he ask them if subsidies, feed-in tariffs and so on can be done away with."

Wrong question, Bish.

Better is "I've suggested he ask them WHEN subsidies, feed-in tariffs and so on can be done away with."

Sep 18, 2014 at 3:54 PM | Unregistered CommenterJoe Public

Bish, CCGT does not do well as peaking capacity. You lose too much of the efficiency gain. Just too much thermal mass on the Rankin cycle (steam) side. The better economic comparison is to a traditional gas peaker.
Arguing that intermittency does not have a high cost is a joke. Just look at your own national grid.

Sep 18, 2014 at 4:16 PM | Unregistered CommenterRud Istvan

Joe Public

Even better if the classic "alternative close" is used.
Will the subsidies and feed-in-tarriffs cease immediately or continue for a few more months?

Sep 18, 2014 at 4:37 PM | Unregistered Commenterpesadia

Raff, it doesn't cool down for hours (if ever sometimes) after the sun goes down. Why would you relyon solar if it stops working at sundown?

I prefer hydro and NG and nuclear power plants for base load.

Sep 18, 2014 at 4:54 PM | Unregistered CommenterBruce

Raff
What do you do in winter? BTW do you own 3/4 cars, one sunny days, one for windy days, one for when the tides flowing and one for the 80% of time when the first three don't have any fuel?

Sep 18, 2014 at 5:07 PM | Unregistered CommentersandyS

How do additional grid costs for distributed and inconvenient location of renewables play into "levelised costs"? Are they ignored also? Anybody know?

Sep 18, 2014 at 5:29 PM | Unregistered CommenterShotover

Solar Panels still cant power cars except miniature model toy ones or Tumble Driers.

Sep 18, 2014 at 5:43 PM | Unregistered Commenterjamspid

There is no doubt in my mind that solar power CAN be competitive in some situations, but "competitive" means different things in complex markets. So many solar panels are being installed in California that most of the giant retail hardware stores there stock solar panels! I have family members who installed solar panels more than five years ago, when California was giving tax credits for half of the cost. They have already broken even. Despite the fact that state subsides are gone (a federal tax credit of 30% remains), they now want to expand to provide solar power for their entire rural neighborhood (50 homes) using community property, charging 5% less than the power company's rate for a long-term contract. Based on their experience, they expected to break even in less than 10 years.

However, they would not be going off the gird; they could still buy power at night or when they ran short. The power company (PGE) would buy excess power at the retail rate. They would avoid punitive power rates that the public utilities commission has set for days of peak demand. PGE would still be required to provide a reliable supply of power 24/7/365 and to maintain the lines running from all of their plants to their development - even though they no longer would be getting net revenue from the development. Thus everyone else's costs would be going up, making solar even more attractive. Fortunately, the state of California doesn't require PGE to treat small solar businesses like this one the same way they treat individuals, and the community solar power proposal died.

To get around this problem, other solar businesses are now financing and installing solar panels for individual homeowners and businesses. PGE is required to supply (and buy back power) from these individual customers for no net revenue. The customer pays 5% below PGE's rate and the solar business keeps any profit and the individual's tax credit.

The electric power business is a complex, highly-regulated business. There is no free market that responds efficiently to match supply and demand at a sensible price. The word "competitive" doesn't have an unambiguous meaning.

Sep 18, 2014 at 5:57 PM | Unregistered CommenterFrank

@ pesadia 4:37 PM

+1

I attended that sales course so long ago, I forgot the finesse.

Sep 18, 2014 at 6:04 PM | Unregistered CommenterJoe Public

The name of the author (Crooks) is the giveaway.

Sep 18, 2014 at 6:10 PM | Unregistered CommenterBitter&Twisted

When someone blows a smoke screen around the fundamental elements required to derive the standard NPV and IRR of a project then that someone is up to no good. New age accounting is no better than new age science.

Sep 18, 2014 at 7:33 PM | Unregistered CommenterMike Singleton

They absolutely have to include in the post-construction operating costs the requirement to keep stand-by reliable power available for when the wind and sun fail to produce. Those stand-by generating systems are not free especially when on stand-by which is obviously their least efficient mode.

Sep 18, 2014 at 7:47 PM | Unregistered Commenterdp

I'll have to start reading more carefully, at first glance I thought this was a report by an investment bank lizard!!!

Sep 18, 2014 at 8:10 PM | Unregistered Commentersunderlandsteve

Frank, California is not the UK.

Sep 18, 2014 at 9:22 PM | Unregistered CommenterSadButMadLad

SadButMadLad,

Exactly. Solar PV makes sense in California because the peak generation (summer midday) coincides with peak demand (due to air conditioning summer midday). If you don't get that natural matching of supply and demand it's much harder for PV to make sense, except for cases where you don't actually need a reliable supply, such as illuminated road side speed warning signs where it doesn't actually matter all that much if they stop working,

The other place I have seen solar PV used in anger is mobile phone base stations in the Egyptian dessert. They have reliable sun most daytimes, use batteries to ride through the night and the odd cloudy day, and have diesel generators for the rare occasions where it is cloudy two days in a row.

Sep 18, 2014 at 9:38 PM | Registered CommenterJonathan Jones

Quick one on Scottish Independence.

Cameron and Blair the goose has come to roast.Independence debate Either yes or no it will leave a lasting legacy of bitterness in Scotland and England.

Maybe the Scottish referendum has done us skeptics a big favour

As with making speculative claims of tacking Climate Change a zero carbon economy the political elite may have finally learnt it too dangerous to pander to the politics of unachievable romantic notions.

Sep 18, 2014 at 10:55 PM | Unregistered Commenterjamspid

Thank you dcardno.

Sep 18, 2014 at 11:31 PM | Registered CommenterHector Pascal

http://www.newsrt.co.uk/news/green-party-s-baroness-jenny-jones-who-slammed-black-cabs-as-london-s-most-polluting-vehicles-claimed-for-more-taxis-than-all-of-her-colleagues-combined-2627957.html

From the "Do as i say not as I do department"

Sep 18, 2014 at 11:52 PM | Unregistered Commenterson of mulder

son of mulder

Words fail, suggest you point it in the direction of Guido

I am sure he would appreciate a diversion from the travails of Bonny Jockland!

Sep 19, 2014 at 12:49 AM | Registered CommenterGreen Sand

Sep 18, 2014 at 5:57 PM | Frank:

However, they would not be going off the gird; they could still buy power at night or when they ran short. The power company (PGE) would buy excess power at the retail rate. They would avoid punitive power rates that the public utilities commission has set for days of peak demand. PGE would still be required to provide a reliable supply of power 24/7/365 and to maintain the lines running from all of their plants to their development - even though they no longer would be getting net revenue from the development. Thus everyone else's costs would be going up, making solar even more attractive. Fortunately, the state of California doesn't require PGE to treat small solar businesses like this one the same way they treat individuals, and the community solar power proposal died.

To get around this problem, other solar businesses are now financing and installing solar panels for individual homeowners and businesses. PGE is required to supply (and buy back power) from these individual customers for no net revenue. The customer pays 5% below PGE's rate and the solar business keeps any profit and the individual's tax credit.

The solution is simple, access to the grid should be levied as a separate cost ... the telephone companies did this years ago with the "line rental" cost separated from call costs. In that way everybody pays their fair share rather than non-solar customers subsidising those with solar power.

Sep 19, 2014 at 12:57 AM | Unregistered CommenterStreetcred

Given that when the sun shines, places and people get hot and turn on air conditioning, which approach would you intuitively take:

How about we don't make decisions based on "intuitively"? How about we investigate what actually happens?

Your intuition tells you that power demand rises on sunny days, but I bet your intuition is wrong for most of the world most of the time (it certainly is wrong for NZ, where air-conditioning is a minor cost, and many people only use it to cool the house down at night to sleep a bit better).

Intuition also tells a lot of Greens that wind and solar are "free". Their intuition is, sadly, leading them up the garden path.

(As an aside, technically coal in the ground is for the taking too. It's every bit as "free" as sunlight. True, we have to pay to dig it up and turn it into electricity, but then we have to pay for solar panels to be built and maintained too, plus the lost value from whatever that land used to do.)

Sep 19, 2014 at 4:51 AM | Unregistered CommenterMooloo

Barely scrapped a NO vote in Scotland.
Only 5 percent is not a mandate.

Good news Scots keep the Queen the Pound and Strictly Come Dancing
The British keep the Nuclear Submarine Base ,NATO and the Union Flag.
Bad news Cameron had to bribed the Scots with more promises of Socialism.

So more Devo Max means more English Consumers paying for more useless Wind Turbines in Scotland then.

What we really need is what we had originally a democratic Great British United Kingdom.
driven with Scottish Innovation and Dynamism .

Sep 19, 2014 at 8:40 AM | Unregistered Commenterjamspid

National grid just now:
Total demand 38.47 GW
Wind 0.56GW or 1.46% against installed 10GW near enough
French nuclear 1.5GW or 3.9%
Basically we would be "up the creek" without coal, gas and nuclear (always providing the vast bulk of supply).
Can't imagine how solar and wind can be competitive under any circumstances or provide security of supply without vast back-up facilities. Cannot understand how intelligent people and sophisticated papers such as FT can continue to promote the myth.

Sep 19, 2014 at 8:40 AM | Unregistered CommenterJohn Peter

John Peter raises the question that needs to be repeated until it is answered:
How can the claims of those promoting so-called alternative energy be taken in the least bit seriously?
We need a climate truth commission, to get those profiting from this outrageous destructive waste of resources called "sustainable energy" to be for once honest and on the record.
The first goal of real sustainable energy policy should be to sustain and improve humanity.
Windmills and solar are the inimical to that goal.

Sep 19, 2014 at 11:55 AM | Unregistered Commenterhunter

John Peter:

Your figures are now rather optimistic...

Wind currently 0.19GW/0.48% of demand..

Looking at the Met Office Surface Pressure Charts, it looks as though we're stuck with high pressure for pretty much the rest of the month. Surely its time for SOMEONE in the DECC (Heaven forbid it should be Ed Davey) to come out and say:
'Wind power is a complete waste of time, money, subsidies and resources.'

Oh - and why is that no more possible than suddenly finding loads of cash down the back of the sofa to appease Scotland..?

Sep 19, 2014 at 1:15 PM | Unregistered Commentersherlock1

Renewable cost estimates are so much bunk. What the renewable industry never does is to actually analyse the overall cost of electricity on a level unsubsidised playing field, at a standard rate of return on capital, for any given practical mix of fuels and energy sources.

That is you have to take into account cost of dispatchable kit (or storage), of extra grid costs from low capacity factor intermittent sources, the cost of running fossil plant at maximum dispatch, when wind or solar is high but variable, and the cost of stand-by capacity to cover peak demand and low renewable generation. You should also apply an environmental cost to minced birds and loss of income from tourism to places blighted by wind turbines, as well as the cost of compensating property owners for loss in property values.

I went a little way down that route in this paper:

http://www.templar.co.uk/downloads/Renewable%20Energy%20Limitations.pdf

but only far enough to show that in all cases the holistic costs of nuclear were well below any extant renewable technology.

That is, even leaving out some of the difficult to assess costs of a renewable energy policy, the fact remains that nuclear is cheaper, even in today's regulation blighted industry. And there is certainly enough nuclear fuel in the world at dirt cheap prices to take us through 1000 years or so, By which time even fusion power might work.

As an aside, some time ago I did a little corporate research on Renewable UK, as an inadvertent result of which I get emailed changes in their structure or financial status.

Readers will be happy to know that the recommended amount of credit you should have with them has risen from £1500 to £3000.

Sep 19, 2014 at 2:31 PM | Unregistered CommenterLeo Smith

For a direct comparison of the costs and capacity factors of wind farms and photovoltaics from the USA Germany and the UK see:

http://edmhdotme.wordpress.com/2012/01/01/hello-world/

updated from

wattsupwiththat.com/2014/09/06/analysis-solar-wind-power-costs-are-huge-compared-to-natural-gas-fired-generation/

Here is an analysis of cost ratios and capacity comparisons. No matter what your viewpoint of economics might be, the numbers here don’t lie. Without being propped up by subsidies, solar and wind aren’t even in the race as their competitiveness leaves them at the starting line while cheap natural gas (aided by fracking) runs laps around the race course.

In summary, these simple figures show that these three major nations of the Western world have spent about ~$0.5trillion to create Renewable Energy electrical generation capacity nominally amounting to ~5.8% of their total generation.

This capacity could be reproduced using conventional natural gas fired electrical generation for ~$31 billion or ~1/16 of the costs expended.

Sep 19, 2014 at 3:07 PM | Unregistered Commenteredmh

"The simple exposition of levelized costs is the Present Value of all costs (capital and operating) over the station lifetime, divided by the PV of all energy over that time. ..."

I don't think you mentioned discount rates here (think of interest rates here if you're not familiar with the term) which are beloved by accountants wanting to get their own way on investments. If you use a higher rate, for example then high decommissioning costs in the future will be lower in present day terms. if you use a lower rate then an investment with a long revenue producing life will become more attractive. It's quite amazing how they can change your mind as to the viability of an investment.

Sep 19, 2014 at 5:48 PM | Unregistered CommenterPaul - Nottingham

@hunter: Perhaps we need a 'sustainable' truth.

Sep 19, 2014 at 7:30 PM | Registered CommenterHarry Passfield

Of course intermittent renewables may be cheaper than other sources on an "energy only" basis in a market that ignores capacity adequacy and provides a free ride on utility back-up generation. When the question is changed to the value of reliable "on demand" energy delivered to customers, intermettent renewables such as wind and solar could not compete even if they offered thier product to the grid for free.

Sep 20, 2014 at 2:10 AM | Unregistered CommenterRichard Stout

"jamspid" wrote on Sep 18, 2014 at 5:43 PM:

Solar Panels still cant power cars except miniature model toy ones or Tumble Driers.

Not true. On a sunny day, the output of my 9.55 kW solar array would charge my Prius Plug-in Hybrid in about 1/2 hour, if it could take the charge that fast. After charging for 2-1/2 hours (less than 5 kWh for a full charge), I can drive to the store and back (about 10 miles) on sunshine -- no petrol required. (The PPH is a four-door hatchback that seats five.)

Sep 20, 2014 at 7:24 AM | Unregistered CommenterColonial

@Colonial: I'm fascinated by the economics of charging you PPH from PV. It seems to me that you have around 30(?) panels on your roof. What did that cost you? And how long before you get those costs back?

Now tell us, what was the real cost of that 10 miles trip to the shops - 'on sunshine'?

Sep 20, 2014 at 9:36 AM | Unregistered CommenterHarry Passfield

@Harry Passfield.

The real cost of his ten mile journey on sunshine is borne by people who dont have solar panels. Since the only way they are cost effective is by mandating that their electricity is bought by someone else who doesn't actually want it at that price.

The great fraud of renewable energy is done by drawing a specially chosen boundary, and evaluating costs inside it.

So: 'grid parity' means in renewable UK terms., taxing and regulating the bejasus out of fossil and nuclear energy, and offering low cost capital to renewable energy, and disregarding any externalised costs of renewable sources - grid upgrades, dispatch and STOR provision, storage, environmental impact, and social impact, because that is societies problem, not theirs, and then announcing that 'it's competitive with nuclear and fossil'..

What this amounts to is regulating electricity prices high enough so that renewable is cheaper,and disregarding the fact that undispatchable electricity promises far greater costs elsewhere than dispatchable.

.

Sep 20, 2014 at 10:04 AM | Unregistered CommenterLeo Smith

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