By Mike O'Boyle
For years, debates about how to reduce carbon emissions from electricity generation were framed as trade-offs: What is the cost premium we must pay for generating zero-carbon electricity compared to fossil fuels, and how can we minimize those costs?
Fortunately, the holidays came early this year for renewable energy: In investment company Lazard’s annual report on the levelized cost of energy (LCOE) for different electricity-generating technologies, renewables are now the cheapest available sources of electricity. This flips the question of clean-versus-cost on its head. And in 2017, we’ll be asking: How much can we save by accelerating the renewable energy transition?
The story from Lazard’s 10th annual report is clear. Rapid technology cost reductions mean wind and solar are now the cheapest form of generation in many places around the country, without federal subsidies like tax credits.
Because different plants have different operating characteristics and cost components, LCOE allows us to fairly compare different technologies. Think of it as finally being able to evenly compare apples to oranges.
Large-scale solar’s cost declines are even more dramatic, falling 85 percent since 2009 from more than $350/MWh to $55/MWh.
The case is even clearer when federal subsidies are considered: Tax credits drive renewable energy costs down to $31/MWh for wind and $43/MWh for solar. These low prices are not only cheaper than building new natural gas plants, but they are also cheaper than many fossil fuel power plants on their marginal cost (i.e. costs for operating, maintaining, fueling, etc.) alone.
In other words, it’s now cheaper in many places to build new wind or solar energy plant than it is to simply continue running an existing coal or nuclear plant:
At least three stodgy institutional barriers limit renewable energy deployment today:
Managing America’s grid with variable renewables also requires rethinking how we operate and plan our electricity systems, and many utilities have been slow to adapt. Grid operators sometimes claim we need to back up solar and wind an equal ratio of fossil fuel power plants like coal or gas for “when the sun doesn’t shine and the wind doesn’t blow," but that’s just not true. Adding wind and solar can reduce the risk of a large outage – what are the odds the wind unexpectedly stops blowing everywhere or the sun is suddenly blotted out by clouds everywhere? In fact, government analysis shows we could quadruple the amount of wind and solar on the grid today without running into reliability issues.
Besides reliability, defenders of the old paradigm of large, fuel-fired power plants argue wind and solar come with integration costs, i.e. backup generation and transmission lines to connect remote locations to the grid. But attributing these costs to any one technology makes little sense across a big grid, where a diverse mix of power generation naturally smooths variability like an index fund versus a single volatile stock, for example.
Gas, coal and nuclear power also require new transmission, fuel supply and storage, and large backup reserves. Like renewable sources, they also have “integration costs,” even without accounting for the health and climate costs of carbon dioxide and other pollution.
Outdated policies leave us unprepared to take full advantage of the rapid cost declines we’re seeing in the wind and solar industry. The time is now to radically adjust for a paradigm where wind and solar form the backbone of our electricity grid.
Images courtesy of America's Power Plan
Mike O’Boyle is the Power Sector Transformation Expert at Energy Innovation, where he works on policy and technology solutions for a clean, reliable, and affordable U.S. electricity system. Mike is also a leading expert for America’s Power Plan, a platform for innovative thinkers to reform utility regulatory models and identify opportunities for grid transformation and optimization. He has worked with stakeholders states including California, New York, Hawaii, and Minnesota to improve links between public policy goals and electric utility motivations. Mike has authored reports on topics including distributed energy resource ownership and operation, mechanisms for adopting performance-based regulation, and proper valuation metrics for utility compensation. He graduated cum laude from Arizona State University’s Sandra Day O’Connor College of Law, and has a B.A from Vanderbilt University in Philosophy and Asian Studies, with a minor in Economics.
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