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Renewable energy costs continue to fall
Lazard has reported wind and solar are now cost competitive with coal and gas for power generation; energy storage costs falling Alan Bailey Petroleum News
Financial consulting and asset management firm Lazard has published a report indicating that renewable energy sources, in particular solar photovoltaic, or PV, and onshore wind, have become cost competitive, and in some cases cheaper, than power generated from natural gas or coal fuel. Another Lazard report shows that the cost of energy storage, primarily in the form of batteries, has also fallen significantly. Energy storage can be used to smooth out the fluctuations in energy output from intermittent energy sources such as solar and wind.
“Although diversified energy resources are still required for a modern grid, we have reached an inflection point where, in some cases, it is more cost effective to build and operate new alternative energy projects than to maintain existing conventional generation plants” said George Bilicic, vice chairman and global head of Lazard’s Power, Energy & Infrastructure Group. “As alternative energy costs continue to decline, storage remains the key to solving the problem of intermittency and we are beginning to see a clearer path forward for economic viability in storage technologies.”
An economic comparison The economics of renewable energy operates in a different manner from that of conventional fuel-driven power generation. With very low operating costs, the cost of energy from a renewable energy system such as a wind farm consists mainly of the cost of amortizing the up-front cost of developing the facility. The cost of energy from a traditional power plant such as a gas-fired power station, on the other hand, is closely related to the cost of the fuel used to generate the power. To make an equable comparison, Lazard has used the cost per kilowatt hour of electricity from a renewable source, and the marginal cost per kilowatt hour from a traditional power station. The marginal cost is the incremental cost of each kilowatt hour generated, on the assumption that the original development cost of the facility has already been recovered.
Falls in renewable energy cost The cost of onshore wind power now appears to have fallen to a range of $29 to $56 per megawatt hour, while the cost of thin film, utility scale solar PV is in the range $36 to $44. The cost of solar PV in a commercial or industrial rooftop application is in the range $81 to $170, while the cost of residential rooftop solar PV power is in the range $160 to $267 per megawatt hour. In some cases government subsidies for renewable energy further reduce the cost of power from these renewable sources.
By comparison, the marginal cost of power from an efficient, combined-cycle, gas fueled plant is in the range $41 to $74 per megawatt hour. Coal fueled power costs $60 to $143, nuclear power costs $112 to $189, and power from a gas peaking plant, designed to support peak power demand, has a marginal cost of $152 to $206 per megawatt hour.
The costs of solar and wind power have both fallen dramatically in the past decade, thus rendering renewable energy cost competitive with traditional sources of electricity, Lazard says.
However, the company does not suggest that this price convergence should necessarily result in all generation coming from renewable sources: Different forms of electricity generation have different characteristics, with different advantages and disadvantage. Renewable energy for example tends to be intermittent, fluctuating with the strength of the wind or the sunlight. This intermittency typically requires counterbalancing power output from perhaps a gas-fired power generating facility that can also provide reliable, base load power.
Energy storage However, it is also possible to handle the intermittency of renewable energy through the use of energy storage technology, typically a battery. Essentially, a wind farm, for example, would feed its intermittent energy into a battery which can then be used as a steady source of power output - it is somewhat akin to the manner in which a car battery levels the car’s electrical voltage regardless of the engine rpm. And, as Lazard now indicates in its second report, the cost of batteries has also been dropping steadily.
Lithium ion batteries, scaled up versions of batteries used in devices such as cell phones, are currently the cheapest battery option. Other options that Lazard evaluated included two different forms of lead-based battery. Lazard’s report indicates that within a power generation, transmission and distribution network, the economics of battery use appear most advantageous in conjunction with a utility scale solar PV facility.
In “behind-the-meter” applications, where batteries are used in support of a commercial or residential electricity consumer’s electricity supply arrangements, energy storage systems appear advantageous for commercial businesses with solar PV systems. The economics are more modest for use in conjunction with residential solar PV, the Lazard report says.
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