Renewable Cost Dropping – Impact to Resource Planning
A very good report on renewable cost is supplied by IRENA – Renewable Power Generation Costs in 2014. The absolute price numbers presented are hard to confirm, but the trends are likely undeniable. Most of the report is based on Levelized Cost of Electricity (LCOE). I have noted LCOE is not the best metric given the structure of the electricity market per my old article in 2012 (which, by the way, is the most popular page on my website for the last few months – not sure why, but it is). IRENA did note the issue with LCOE in their report.
The results from this report lead to implications that go beyond the obvious that renewable cost are coming down and potentially being very competitive with fossil generation. The first implication is the fact a report like this will lead to significant second guessing and planning work by resource planners.
Price discovery and the realities of renewable projects should be made transparent. IRENA report notes cost is very dependent on location. In states or local areas with renewable mandates with incentives, an open platform for project submissions should be created given ratepayer subsidies. Developers, ratepayers, utilities, and government officials should be able to access this site. I noted this in my article with my concerns to Senate Bill 310 in Ohio. There was an advance energy requirement in SB 221 which was removed per reasoning that there was a lack of projects under the guidelines of advance energy. My main concern with SB221 was the failure of the legislation to enable the commission to regulate and enforced the targets set forth. An enabler could have been budgeting and creating an open bidding platform promoted and managed by the state for advance energy projects. The platform would remove the concerns of pricing and the availability of advanced energy projects. This is beneficial to all parties. The utility removes the second guessing of the market place. Ratepayers and the commission know the project premiums and the depth of projects available. The cloak of the “evil” utilities preventing renewables will be removed with an open bid platform for advance energy. Cost produced from reports like IRENA will quickly be confirmed or denied. There is no need for commercial secrecy and competitive advantage when the ratepayer is willing to subsidize and potentially pay a premium.
The second implication from this report is to realize utility scale projects saves money. The report shows utility scale vs. residential PV produces a savings of over 50%. This savings not only comes in scale of projects, but by the utility cost of capital and other business intrinsic properties. Utilities should move into the PV space as Tucson Electric Power has done. There is no doubt a utility can drive more installation than a private company given the correct leadership and vision.
The third implication is the need to revisit biomass opportunities. Biomass generation’s ability to operate more closely to traditional resources offers significant operational advantages over wind and solar. The cost from this report indicate the premium for biomass is in line if not more favorable than many wind and solar projects. Many coal plants are making the conversion to gas. However given the trends and technology improvements in biomass a serious option to consider is the conversion from coal to biomass or even co-firing. The initial biomass projects in the US were a disaster in many cases. However, as with anything new, sometimes it takes a few failures to become a great success. The ratepayers should be equally willing to pay a premium for biomass as they do for solar and wind.
A final implication I will discuss is the subsidies applied to renewable generation. According to the IRENA report all their numbers represented cost without subsidies. Perhaps subsidies need to be removed from the most developed forms of renewables (e.g. wind) and the subsidies rolled down to other advanced energy forms. Advanced energy initiatives can be consider as insurance to the unknown of the future. As a society, we should be able to realize paying an insurance premium at a certain level is reasonable. Legislatures and commissions need to work to establish that reasonable level. Progress from anything new will come with some failures, but we must learn from these failures and move forward. The trend in falling prices from renewables was stimulated from government mandates. As generally a libertarian, this claim is hard for me to make, but being a realistic libertarian one realizes the system is not free to begin with therefore ideal principles cannot always work in an unideal environment. Utilities in their design are quasi-governments with limited competition. Stimulating the renewable investments from government mandates were likely necessary to achieve the fall in prices being observed. Much credit still must be given to the market players who took advantage of the mandates and delivered the cost improvements. It is my hope that at some point the subsidies and mandates will not be needed and we will have the capability to remove them. History is not our friend on subsidy removal. The agriculture industry still sees subsidies developed from the great depression. Even though our economy has shifted from agriculture, we continue with huge subsidies for farms no longer owned by families, but large corporations. Common in today’s political climate, we accept corporate welfare much easier than we accept social welfare. The reason for this is likely the effective capability of recycling corporate welfare dollars to the political process. I guess corporations are people to – right (Citizens United vs. Federal Election Commission)?
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Your Continually Advancing Energy Analyst,
David K. Bellman
All Energy Consulting LLC- “Adding insights to the energy markets for your success.”