Is Solar Really Cheaper Than Fossil Fuels?
Solar lifecycle costs are where the rubber meets the road
- If you want to be smart on solar, you have to hold one key distinction in your mind at all times – system costs vs. total lifecycle costs. Much of the hoopla about solar revolves around system costs, basically the cost of buying solar panels. These costs have plummeted to nearly $2/watt, after a truly precipitous decline over the past 5+ years. Though there are some concerns about how a recent oversupply of solar PV from China has contributed to this cost decline, many project that solar will be selling at below $1/watt in the future.
- However, it is the total lifecycle costs, often referred to as the levelized cost of energy (LCOE), of solar that is actually that which matters to utilities and other power producers that are trying to compete with conventional generation. This cost covers the gamut of capital costs, operation and maintenance costs, performance, and fuel costs. Solar LCOE has decreased an astounding 78% since 2009, or over 25% annually. When we examine these costs, we can see that only the lowest cost coal ($66/MWh) and gas combined cycle ($61/MWh) can currently outcompete solar ($72-86/MWh) (Source: Lazard). When accounting for future fuel prices, the story for conventional generation gets less rosy, and solar becomes even more attractive.
Location makes a difference, but its not only about where the sun shines
- For anyone that understands that insolation is lower in the more northern regions of the country, it is no surprise that solar is not going to work everywhere equally well. But the story does not stop here. The costs of solar development varies to some degree regionally, and public policy such as feed-in tariffs and subsidies largely determine where solar is most economically viable. But a sometimes unconsidered factor is the cost of incumbent electricity generation with which solar has to compete. Solar is going to be more cost-effective in regions that are paying more for conventional electricity.
- Based on projections for solar costs in 2017, it is estimated that the LCOE of utility-scale solar will be well below the current generation costs in many major urban areas such as New York, Los Angeles, D.C., and Boston (Source: Lazard). Interestingly, in a number of southern cities with better insolation, such as Atlanta, Miami, Dallas, and Houston, utility-scale solar would still be more expensive, but only marginally.
The hidden bonanza in using solar to meet peaking demand
- Meeting peak demand is often the most expensive and dirtiest part of managing the electric grid. Most dispatchable peak demand is met with gas or diesel generators, which is the U.S. runs between $179-$230/MWh or $297-$332, respectively.
- Solar PV could be an attractive resource relative to these peaking generators, with costs ranging between $86-$177/MWh. Here is the kicker – without storage, solar leaves much to be desired in terms of meeting the dispatch characteristics necessary to serve as a peaking technology. Until recently, it would have been easy to discount solar as a peaking technology, but storage is undergoing a revolution in technology and is reducing costs much faster than many would have suspected. Stay tuned!
Here, we painted a broad picture of the solar vs. fossil fuel cost story. However, when it comes to building out our utility-scale solar capacity, there are many devils in the details of public policy, utility relations and interconnection, and local land planning. Low solar costs have paved the way for a more rapid deployment of the technology, but the way forward is not without obstacles.
*Article from g-bit.com, a clean energy research and advisory services firm. Contact g-bit at [email protected].