Thursday, January 12, 2012

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Solar Grid Parity 101

Posted: 12 Jan 2012 10:39 AM PST

 

solar home cost

Solar grid parity, when installing solar power will cost less than buying electricity from the grid, is considered the tipping point for solar power.  It's also a tipping point in the electricity system, when millions of Americans can choose energy production and self-reliance over dependence on their electric utility.

But this simple concept conceals a great deal of complexity.  And given the stakes of solar grid parity, it's worth exploring the details.

The Cost of Solar

For starters, what's the right metric for the cost of solar?  The installed cost for residential solar ($6.40 in 2011), or commercial solar ($5.20), or utility-scale solar ($3.75)?  Even if we pick one of these, it's difficult to compare apples to apples, because grid electricity is priced in dollars per kilowatt-hour of electricity, not dollars per Watt.

Enter "levelized cost," or the cost of a solar PV array averaged over a number of years of production.  For example, a 1-kilowatt (kW) solar array installed in Minneapolis for $6.40 per Watt costs $6,400.  Over 25 years, we can expect that system to produce about 30,000 kilowatt-hours (kWh), so the "simple levelized cost" is $6,400 divided by 30,000, or about $0.21 per kWh.

But people usually borrow money, and pay interest, to install solar power.  And there are some maintenance costs over those 25 years.  And we also use a "discount rate" that puts heavier weight on dollars spent or earned today compared to those earned 20 years from now.  A 1-kW solar array that is 80% paid for by borrowing at 5% interest, with maintenance costs of about $65 per year, and discounted at 5% per year will have a levelized cost of around $0.37.

That means that "solar grid parity" for this 1-kW solar array happens if the grid electricity price is $0.37 per kWh.  But this calculation is location specific.

In Los Angeles, that same 1-kW system produces 35,000 kWh over 25 years, lowering the levelized cost to $0.31.  The time frame also matters.

If we only look back at the Minneapolis project with a levelized cost of $0.37, but instead look at the output over 20 years instead of 25 years, it increases the levelized cost to $0.43, because we have fewer kWh of electricity over which to divide our initial cost.

We choose 25 years because solar PV panels have a good chance of producing for that long. (Though, some argue that the life span used should be at least 30 years.)

We also use a lower installed cost than the U.S. average.  Residential solar projects may average $6.40 per Watt, but there are some good examples of aggregate purchase residential solar projects costing $4.40 per Watt.  The levelized cost of solar at $4.40 per Watt in Minneapolis is $0.25; in Los Angeles it is $0.21.

The following map shows the levelized cost of solar, by state, based on an installed cost of $4.40 per Watt, averaged over 25 years (click for a larger version).

This map shows half our grid parity equation, the cost of solar.  But what about the other half, the grid price?  It's another complicated question.

The Grid Price

Utilities like to compare new electricity production to their existing fleet, which means comparing new solar power projects to long-ago-paid-off (amortized) coal and nuclear power plants that can produce electricity for 3-4 cents per kWh.  But this is apples to oranges, because utilities can't get any new electricity for that price, from any source.

A more appropriate measure of the grid price is the marginal cost for a utility of getting wholesale power from a new power plant.  In California, this is called the "market price referent" and it's around 12 cents per kWh.  The figure varies from state to state.

But, while the market price referent provides a reasonable comparison for the cost of utility-scale solar, it's not the number that matters for solar installed on rooftops or near buildings.  In those cases, the power is used "behind the meter," and depending on the type of state policy for net metering, the customer can essentially spin their electric meter backward when their solar panels produce electricity.  That means that solar power is really competing against the energy cost on a utility bill, known as the "retail price."

The following map shows the average retail electricity price by state across the U.S.  It ranges from 8-10 cents in the interior to 15 cents per kWh and higher on the coasts (click for a larger version).

In general, the residential retail electricity price is the generally accepted grid parity price.  With this price and our previous map of the levelized cost of solar, we can assess the state of solar grid parity.  The following map shows the ratio of the levelized cost of solar to the grid parity price in each state.  Only Hawaii has reached solar grid parity without incentives.

As time rolls ahead, and grid prices rise while solar costs fall, the picture changes.  In five years (2016), three states representing 57 million Americans will be at solar grid parity: Hawaii, New York, and California.

There are other considerations in the grid parity calculation.

Time-of-Use Rates

Some utility customers pay "time-of-use" rates that charge more for electricity consumed during times of peak demand, such as when a hot sunny day has everyone using their air conditioners.  Under these rates, a solar project can be replacing electricity that costs upwards of $0.30 per kWh.  Over a year, time-of-use rates can (on average) boost the cost of electricity – at peak times, when solar panels produce a lot of power – by about 30 percent.  Assuming every state implemented time-of-use pricing (and that it was equivalent to a 30-percent increase in grid prices during peak times), solar grid parity would be a reality in 14 states in 2016, instead of just 3.

Solar v. Grid Over Time

There's one other calculation.  Let's say that in 2011 solar still costs just a bit more than the grid electricity price, but that the grid price is rising at a modest rate each year.  In this case, solar may still be the right choice because the lifetime cost of solar (at a fixed price) will be less than the rising cost of grid electricity.  We can use an accounting tool called “net present value” to estimate the savings from solar compared to grid power over 25 years, and we find that, for every percentage point annual increase in electricity prices, solar can be ~10% more expensive than grid power today and still be at "parity."  We find that with electricity price inflation of 2% per year, solar grid parity shifts up two years using this method.

To further explain the concept of solar grid parity, I've also created this slideshow below.

Solar grid parity has enormous implications for the electricity system and the time is drawing very close for many Americans.  I hope this post (and slideshow) helps to illustrate the complexity of the concept, and I'd appreciate your feedback via email (jfarrell@ilsr.org) or in the comments below.

Solar home via mlinksva

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A Wind Technician’s Perspective Helps AWEA Fight for Tax Credits

Posted: 12 Jan 2012 10:28 AM PST

Wind energy: the old and the new

The American Wind Energy Association (AWEA) has produced new video content on its website under the banner, WindTV. This well-produced video provides an interesting look at the life of Matt Crawford, an Iowa lead wind energy technician. It also offers a glimpse into his country's wind energy jobs, an important consideration as the production tax credit for wind energy is set to expire at year-end.

As we know too well, opinions are plentiful when it comes to discussing energy solutions for the next century. They are also abundant – pro and con — about the desirability and viability of wind energy, especially when it involves subsidies like tax credits. Considering the majority of industries associated with providing energy – from oil and gas drillers to corn farmers and ethanol manufacturers – enjoy a variety of government subsidies, WindTV is a platform where a good dose of timely and accurate information can be very useful.

Importantly, this series has been produced to provide information on the subject, both in terms of how it works and what skills are required, from a worker standpoint. The Crawford piece does a credible job of highlighting how wind works for America, including what it's like to be inside one of those towers, for those who might be wondering.

In the video, Crawford describes "a day in the life of a wind tech."  At a time when many rural communities are losing young residents because jobs are scarce, wind power has allowed the still-youthful Crawford and his wife to live near family in Iowa. Crawford's window of opportunity for fulfilling employment may be short-lived, though. AWEA points out that the federal Production Tax Credit for wind energy is scheduled to expire at the end of the year, causing some developers to freeze plans for any new projects such as those that Crawford services.

AWEA supports continuation of the tax credit, citing a study, stating that with stable tax policy the wind industry can create and grow to almost 100,000 American jobs just in the next four years, including growing the wind-manufacturing sector by one-third to 46,000 jobs.

AWEA CEO Denise Bode adds emphasis concerning wind energy employment in America: "To create more jobs for people like Nathan, Congress must extend the Production Tax Credit as soon as possible."

AWEA has made an aggressive first step in addressing issues concerning renewable wind energy. Hopefully, it continues what it has started, addressing questions about storage, noise, land use, and distribution – all critical questions as we advance forward in this century with growing energy demands.

PHOTO: Great Beyond

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Inner City Geothermal House Looks Good

Posted: 12 Jan 2012 09:17 AM PST

 

Geothermal heat can help you save money. Check it out (can take a few seconds to load):

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Mexico Geothermal Energy Off to Good 2012 Start with 50-MW Los Humeros II

Posted: 12 Jan 2012 08:36 AM PST

Photo courtesy Alstom

Geothermal energy is starting off 2012 in grand fashion in Mexico, with the 50-megawatt (MW) capacity Los Humeros Phase II geothermal energy plants in the east-central Mexico state of Puebla due to come fully on-line in May this year. Following the expected completion of the Los Humeros II Phase B plant, the Phase A and Phase B plants will cost-effectively produce more than 400 gigawatt-hours (400GWh) of electricity, enough to provide clean, renewable, baseload electrical power to some 100,000 local homes and businesses.

Mexico’s Energy Dept., the Comision Federal de Electricidad (CFE), and the state of Puebla have been working with France’s Alstom to expand geothermal energy capacity at the site over the past three years. Alstom yesterday announced signing the Los Humeros II Phase B €30-million (~$39-million) contract with the CFE, which calls for it to provide a turnkey, 25-MW geothermal power plant. Alstom and the CFE signed the initial Los Humeros II Phase A contract in May 2009.

Clean, Reliable, Cost-Effective: Geothermal Energy in Mexico

This may come as something of a surprise – it did to me – but Mexico ranks fourth worldwide in terms of geothermal energy generation, behind the US, the Philippines, and Indonesia. With geothermal energy plants up and running in Baja, California, Coahuila, Jalisco, Michoacan and Puebla, Mexico currently has 959 MW of geothermal energy generating capacity.

Part and parcel of adding significantly to Mexico’s clean, renewable energy capacity, the Los Humeros geothermal energy plants will significantly reduce the greenhouse gas emissions and other environmental pollution and degradation associated with fossil fuels, while at the same time reducing Mexico’s dependence on them. The stability, reliability and long-life of such projects will also stabilize energy costs over the long term, insulating the state electric utility and residents from volatile fossil fuel energy prices.

Such projects are also providing a boost to the local economy. Alstom’s contract calls for it to supply complete engineering, procurement and construction (EPC) services and products, which include the steam turbine, air-cooled turbo generator, turbine control and distributed control system. The turbine will be produced at Alstom’s Morelia manufacturing facility in western Michoacan state, according to Eureoenergie’s report.

The Los Humeros’ contracts mark Alstom’s successful return to Mexico’s geothermal energy market. Its past work in Mexico included building four, 25-MW geothermal energy generation units at Michoacan’s Los Azufres geothermal power plant in 2000 and supplying two, 5-MW units at Baja California Sur’s Las Tres Virgenes geothermal power plant in 1998.

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Much Ado About Nothing? Report Suggests Airlines Might Profit from EU Carbon Levy

Posted: 12 Jan 2012 06:09 AM PST

 

The new year brought with it a new regime for air travel in Europe. Starting on January 1, all air flights taking off or landing at an airport within the European Union are included in the EU’s emissions trading system that limits the carbon emissions of pollution-intensive industries. Airlines must buy permits on the carbon markets to cover the emissions their flights produce.

As you might expect, the airlines are fighting this tooth and nail. A coalition of American airlines (including, yes, American Airlines) recently went all the way to the European Court of Justice to argue that the ban, when applied to non-European based airlines, was illegal because it infringed the sovereignty of non-EU states. (They lost.) China’s airlines have gone further, saying that they’re simply not going to pay, raising the prospect of a legal stand-off that could see them barred from EU airports.

But if a new study is correct, the airlines are making a lot of fuss for nothing. Inclusion in the emissions trading scheme won’t cost them a penny — and could actually lead to a €2 billlion windfall.

This slightly counter-intuitive conclusion was reached by a group of US-based academics, funded by the FAA. They calculated the effect of inclusion on the ETS on airlines, and the results were surprising. As EurActiv explains:

The study’s models make three key assumptions:
• A carbon price of €15 a tonne that increases by 4% a year
• A 35% increase in the airlines’ CO2 emissions between 2011 and 2020
• A full ‘pass-through’ of costs to the consumer

If all three happened, the report concludes that airlines could receive a $2.6 billion (€2.03 billion) bonanza.

Confused? Allow us to explain. For all the fuss about the ETS, the scheme is only actually going to require airlines to pay for 15% of their emissions. They get the rest of the allowances for free. If they pass more costs on to the consumer than they’re actually paying, they could make a tidy profit.

Not surprisingly, perhaps, the methodology of this study has been controversial. EurActiv goes on:

… even some staunch supporters of the ETS, questioned the methodology used in the report.

John Hanlon, the secretary-general of the European Low Fares Airline Association (ELFAA), said the central contention that allowance costs could be passed back to the consumer was a "canard" and a "fallacy".

"I see no evidence to support that," he told EurActiv. "There is an enormous sensitivity to airfares and the component most adversely affecting that is the price of fuel."

So, who’s right?

It certainly won’t be as simple as the study claims for airlines to whack consumers with the full cost — and more — of the EU carbon levy. Europe’s air industry is fiercely competitive, thanks in large part to the low-fares airlines that Hanlon represents.

But it does seem certain that airlines will manage to pass most of the cost — of the 15% of permits that they actually need to buy — on to ticket prices. After all, the levy affects all those using European airlines equally, so there’s no reason why one should be able to afford to undercut rivals by swallowing the costs. A good guide to this is energy prices under feed-in-tariff systems, where the extra cost of paying the agreed rate for renewable energy is designed to be passed on to consumers, and usually is.

German airline Lufthansa (pictured) has already announced it intends to pass the full cost of ETS permits on to passengers.

We doubt that the ETS is going to cost airlines that dearly or give them windfall profits. What it might do is compel them to take more steps to ensure planes are full — which is good news for emission reduction.

Still, we doubt all the studies in the world will stop American and Chinese airlines acting like the EU levy is going to bankrupt them. Fortunately, EU politicans don’t seem to be heeding them.

Source: EurActiv | Via: