For the solar and wind industries in the United States, it
has been a long-held dream: to produce energy at a cost equal to conventional
sources like coal and natural gas.
That day appears to be dawning.
The cost of providing electricity from wind and solar power plants has
plummeted over the last five years, so much so that in some markets renewable
generation is now cheaper than coal or natural gas.
Utility executives say the trend has accelerated this year,
with several companies signing contracts, known as power purchase agreements,
for solar or wind at prices below that of natural gas, especially in the Great
Plains and Southwest, where wind and sunlight are abundant.
Those prices were made possible by generous subsidies that
could soon diminish or expire, but recent analyses show that even without those
subsidies, alternative energies can often compete with traditional sources.
In Texas, Austin Energy signed a deal this spring for 20
years of output from a solar farm at less than 5 cents a kilowatt-hour. In
September, the Grand River Dam Authority in Oklahoma announced its approval of
a new agreement to buy power from a new wind farm expected to be completed next
year. Grand River estimated the deal would save its customers roughly $50
million from the project.
And, also in Oklahoma, American Electric Power ended up
tripling the amount of wind power it had originally sought after seeing how low
the bids came in last year.
“Wind was on sale — it was a Blue Light Special,” said Jay
Godfrey, managing director of renewable energy for the company. He noted that
Oklahoma, unlike many states, did not require utilities to buy power from
renewable sources.
“We were doing it because it made sense for our ratepayers,”
he said.
According to a study by the investment banking firm Lazard,
the cost of utility-scale solar energy is as low as 5.6
cents a kilowatt-hour, and wind is as low as 1.4 cents. In comparison, natural
gas comes at 6.1 cents a kilowatt-hour on the low end and coal at 6.6 cents.
Without subsidies, the firm’s analysis shows, solar costs about 7.2 cents a
kilowatt-hour at the low end, with wind at 3.7 cents.
“It is really quite notable, when compared to where we were
just five years ago, to see the decline in the cost of these technologies,”
said Jonathan Mir, a managing director at Lazard, which has been comparing the
economics of power generation technologies since 2008.
Mr. Mir noted there were hidden costs that needed to be
taken into account for both renewable energy and fossil fuels. Solar and wind farms, for example, produce
power intermittently — when the sun is shining or the wind is blowing — and
that requires utilities to have power available on call from other sources that
can respond to fluctuations in demand. Alternately, conventional power sources
produce pollution, like carbon emissions, which face increasing restrictions
and costs.
But in a straight comparison of the costs of generating
power, Mr. Mir said that the amount solar and wind developers needed to earn
from each kilowatt-hour they sell from new projects was often “essentially
competitive with what would otherwise be had from newly constructed conventional
generation.”
Experts and executives caution that the low prices do not
mean wind and solar farms can replace conventional power plants anytime soon.
“You can’t dispatch it when you want to,” said Khalil
Shalabi, vice president for energy market operations and resource planning at
Austin Energy, which is why the utility, like others, still sees value in
combined-cycle gas plants, even though they may cost more. Nonetheless, he
said, executives were surprised to see how far solar prices had fallen. “Renewables
had two issues: One, they were too expensive, and they weren’t dispatchable.
They’re not too expensive anymore.”
According to the Solar Energy Industries Association, the main trade
group, the price of electricity sold to utilities under long-term contracts
from large-scale solar projects has fallen by more than 70 percent since 2008,
especially in the Southwest.
The average upfront price to install standard utility-scale
projects dropped by more than a third since 2009, with higher levels of
production.
The price drop extends to homeowners and small businesses as
well; last year, the prices for residential and commercial projects fell by
roughly 12 to 15 percent from the year before.
The wind industry largely tells the same story, with prices
dropping by more than half in recent years. Emily Williams, manager of industry
data and analytics at the American Wind Energy Association, a trade group, said
that in 2013 utilities signed “a record number of power purchase agreements and
what ended up being historically low prices.”
Especially in the interior region of the country, from North
Dakota down to Texas, where wind energy is particularly
robust, utilities were able to lock in long contracts at 2.1 cents a
kilowatt-hour, on average, she said. That is down from prices closer to 5 cents
five years ago.
“We’re finding that in certain regions with certain wind
projects that these are competing or coming in below the cost of even existing
generation sources,” she said.
Both industries have managed to bring down costs through a
combination of new technologies and approaches to financing and operations.
Still, the industries are not ready to give up on their government supports
just yet.
Already, solar executives are looking to extend a 30 percent
federal tax credit that is set to fall to 10 percent at the end of 2016. Wind
professionals are seeking renewal of a production tax credit that Congress has
allowed to lapse and then reinstated several times over the last few decades.
Senator Ron Wyden, the Oregon Democrat, who for now leads
the Finance Committee, held a hearing in September over the issue, hoping to
push a process to make the tax treatment of all energy forms more consistent.
“Congress has developed a familiar pattern of passing
temporary extensions of those incentives, shaking hands and heading home,” he
said at the hearing. “But short-term extensions cannot put renewables on the
same footing as the other energy sources in America’s competitive marketplace.”
Where that effort will go now is anybody’s guess, though,
with Republicans in control of both houses starting in January.
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