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“Renewable Energy: the closer you look, the better the news gets!

January 17th, 2018 · 3 Comments

For decades, those advocating for a clean-energy revolution had to advocate for better analysis and calculations to demonstrate that going clean (solar, wind, efficiency) was the better, smarter choice.  Traditional financial structures and analysis favors dirty solutions: emphasizing upfront (rather than life-cycle costs), discounting heavily future benefits, stove-piping analysis without considering systems implications, discounting (typically ignoring) risks (such as potential fuel price fluctuations), ignoring ‘co-benefit’ steams, leaving negative externalities out of the equation, and …  Within those traditional approaches, the deck was stacked against choosing the clean solution.  Analysts focused in this arena, trying to find paths to enable the right choice to be the preferred and easy choice laid out many paths.

  • Focusing on life-cycle costs is a better economic approach …
    • Purchase prices come with associated long(er) term costs which are frequently (far) higher than that purchase price — across all of the economy.  Focusing on sticker price can, often, lead to a less optimal longer-term cost structure.
    • Don’t focus on CtB (cost to buy) but on CtO (cost-to-own), whether this is in deciding whether to buy an electric taxi, ‘green’ a school, lighting in a condominium building, or in purchasing a desk lamp: understand not just that purchase price, but the full costs of owning/operating that ‘system’.
    • ‘Going clean’ might cost more upfront, but that the long-term costs for a cleaner options would be better.
  • Understand and incorporate co-benefits
    • Job creation
    • Increased productivity (in government, business, and education)
    • Reduced maintenance costs
    • Improved health
    • Increased capability
  • Incorporate risk calculations
    • Price fluctuations/uncertainty
    • Supply/service disruption
    • Policy change
  • Consider systems benefits, value externalities
    • Incorporate/understand how ‘paying more’ for one part of a system can reduce costs elsewhere … leading to same or lower purchase price for better long-term payoff.
    • Benefits (reduced local temperatures, reduced run-off, etc …)
    • Price in pollution costs
      • e.g., end the hidden subsidies to polluting options by privatizing the costs into the transaction (rather than leaving these socialized, to be born by all, even those not involved in the transaction).
  • And, well, so on …

When doing such fully-burdened cost-benefit analyses (whether for an individual home (accounting for “home performance and comfort” rather than simply “energy costs”) or designing schools or climate action across an entire economy), the return-on-investment for ‘clean’ almost always came out powerfully better than traditional, polluting ways.

Whether for the individual looking at a light-bulb purchase price at the hardware store, the CFO deciding how to invest Corporation resources, or the School Board making decisions on school construction, this sort of ‘comprehensive’ robust analysis — that fell outside typical ‘green-eyeshade’ accounting norms, practices, and rules — was a long haul. There were/are such decision-makers ready to think that way — but most people don’t calculate and compare across six options a decade of energy costs when buying a television and few CFOs think about work force productivity when making energy-efficiency investment decisions.

A frustration — what, financially (and societally) would be ‘the right choice’ wasn’t ‘the easy choice’ and simply wasn’t easily evident as ‘the right choice’ to decision-makers at many levels across the economy.

Well, ‘the times, they are a changin ...’*

Increasingly, across economies and across different levels of decision-makers, this environment is changing — quite radically. (Seemingly convoluted and) Complicated analyses are, increasingly, no longer required as the simplest of (traditional) financial calculations are now, often, showing that the clean choice is the better financial choice.

For example, the Google calculation of RE<C (renewable energy costing less than coal) is increasingly becoming reality. When proposed a decade ago, this seemed a lofty objective — to drive down the price of new renewables (like solar and wind) to well below the price of new coal plants. In market after market, renewables (especially solar and wind) are blasting through that target: it isn’t just cheaper to install new wind and/or solar electricity than coal (and, often, natural gas), that new build wind and solar is cheaper than continuing to operate existing coal facilities.  This new reality is why, around the globe, renewable electricity is the vast majority of new electrical generation capacity with new coal plants disappearing from planning and existing coal plant retirements (or conversions to natural gas) occurring on an almost daily basis.

Colorado’s recent bidding for electricity is making real news and providing (yet) another blunt signal that the renewable revolution is real and even accelerating. As part of a long-term plan, XCEL Energy put out a request for proposals for new electricity generation. Released on about the slowest news moment, 29 December, solar and wind prices blew away polluting electricity options without requiring any form of the considerations above. And, including in storage still left the wind and solar costs far below coal costs — even existing coal generation costs.

With numbers like these, any fiscally sensible planner won’t just be buying clean energy for new generation but considering paths toward retiring out more expensive fossil fuel generation — as fast as possible. As Joe Romm put it, this is how coal dies — super cheap renewables plus battery storage.

Solar, wind, and battery prices are dropping so fast that, in Colorado, building new renewable power plus battery storage is now cheaper than running old coal plants. This increasingly renders existing coal plants obsolete.

Solar and Wind underbid fossil fuels in Colorado

As David Roberts points out, what is key here is that this is real world, not some theoretical analytical game.

Usually, when we talk about how renewable energy will evolve in the next five years, we rely on analysts and projections. This is different.

When a utility puts out a request for proposals (RFP) — asking developers to bid in for the chance to build new energy resources — the developers who respond aren’t guessing, or boasting. They are laying down a marker that might get called. They are promising only what they are confident they can deliver.

That makes the responses to an RFP a clear snapshot of the state of the industry, relatively unembellished by ideology or public relations spin.

The real world — the people doing green-eyed calculations — are stating that they can deliver not just RE<C, but renewable energy far less expensively than coal. That matters.

And, in a post filled with many key points, this point cannot be emphasized enough:

This particular snapshot reveals that, on the ground, renewable energy costs are falling faster than even the most optimistic analyst had projected.

While there is constant discussion of the problems of IEA and EIA forecasting when it comes to renewable energy, even the most aggressive analysts (okay, there might be some exceptions … but, well, I don’t know them) have been pessimistic about the course of clean energy options. Wind (onshore and offshore), solar (especially pv), storage, smart grid, and … are blowing through predictions of penetrations and costs.

Let’s face it: In most areas of life, when you look past the hype at the real numbers, it’s depressing. Renewable energy is one area where that typical dynamic is diverted. The closer you look, the better the news gets!”

David Roberts

When it began under Secretary Chu, the Department of Energy’s SunShot program had a target of 5 cents per kilowatt hour for industrial solar in the desert Southwest by 2020.  That was clearly seen as a stretch goal and, well, many thought it a stretch too far.  That 5 cents is more than double the median solar bid in Colorado. (Note, yes, bids are for 2023 but this is meant as exemplary.)

Analytical groups like Lazard and Bloomberg New Energy Finance do excellent work, with massive data analysis, and strive hard ‘to get it right’.  And yet, the prices bid in Colorado — and in project after project around the world — are a fraction of their projected prices decades from now.  As Roberts highlights,

The financial advisory firm Lazard issues a much-watched analysis each year of the “levelized cost of energy (LCOE),” a measure that purports to directly compare energy sources based on total costs. Its 2017 analysis estimated that solar+batteries has an LCOE of $82/MWh. You might notice that the median Xcel bid for solar+storage is less than half that. …

Saudi Arabia recently saw bids for utility-scale solar at under $20/MWh, which is less than half Lazard’s lowest estimate for the range of solar LCOE ($46/MWh).

At an auction in Chile last year, a solar+storage project won at $34.40/MWh, which is a third lower than the lowest Lazard LCOE estimates for solar alone.

A company called ViZn Energy Systems, which uses flow batteries rather than lithium-ion, is promising $27/MWh solar+storage by 2023, when the Xcel projects are scheduled to be online. By comparison, Bloomberg New Energy Finance projects an average LCOE of a little higher than that for solar alone in 2030.

Now, as Roberts does explain, there is lots of complexity in calculations and the individual situations around each project (subsidies, quality of renewables, etc …) but the real world is increasingly showing that the lowest cost option within traditional financing calculations is renewable.

The Xcel RFP in Colorado is a relatively small signal, but it is one of many sending the same message: renewable energy is not “alternative” any more. Costs are dropping so fast it’s difficult to keep track. It is the cheapest power available in more and more places, and by the time children born today enter college, it is likely to be the cheapest everywhere. That’s a different world.

All that analytical effort for ‘fully-burdened’ isn’t irrelevant in this “different world” even as it is less required to enable decision-makers to make a cleaner, better for humanity choice when seeking to make the best choice within their ‘stove-piped’ calculations.  If — IF — that broader analysis is incorporated, as well, it will even further accelerate moves toward clean energy solutions.

Notes:

* With all due respect to Bob Dylan, I simply enjoy Traci Chapman’s voice.

 

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Tags: analysis · economics

3 responses so far ↓

  • 1 When it comes to renewable energy forecasting, Japan’s follows world lead // Jan 19, 2018 at 12:28 pm

    […] ← “Renewable Energy: the closer you look, the better the news gets! […]

  • 2 (R)Evolution, not war // Feb 5, 2018 at 2:07 pm

    […] Donald Trump and other fossil fools are caught in false rhetoric about a ‘war on coal’ that ignores technical, economic, and financial realities. They wish to drive the United States into reinvesting and relying on a costlier, less-efficient energy system that will cost Americans more and disadvantage the nation economically against those embracing the ever-less expensive and cost-advantaged clean-energy systems. […]

  • 3 New EIA forecast subtitled: We are EFFed … // Feb 6, 2018 at 11:27 am

    […] Forecasted prices for 2022 for both wind and solar are well above what are already being bid into commercial contracts. […]