This post uses 2015 information to demonstrate that wind and solar power purchase agreements (PPA) are the best indicators of the renewables’ cost and should be used when comparing them to conventional sources.
When a company plans to construct a wind or solar project, they calculate the cost of building and operation over a long period, say 20 years. The also estimate the amount of electricity to be produced, divide the two results, add a small profit, and obtain a PPA. Errors are costly; too low an estimate and the company will lose money, too high an estimate and the company may lose a competitive bid.
Economic theorists use the same kind of process to calculate levelized cost of energy (LCOE). As shown in the Table, their results tend to vary wildly.
The differences among different researchers are huge. More importantly, only the spread in Lazard data straddles the actual cost. The lower bound of the EIA data, which have been used extensively by renewable energy opponents, is twice the true cost. And the IER cost is five times the true cost. If IER is correct, companies selling wind farms are losing over 80¢ on the dollar.
Although the PPA data base is small, the same trends are seen as for wind. The Lazard spread straddles the actual result, while the EIA is a gross overestimate.
Table of Cost/Price of Renewable Energy
(All values in $/MWh; sources listed below)
|PPA = 22, Ref. LBL|
(a) Includes subsidy; published value omits recently-renewed subsidy.
B. Industrial Solar
|PPA = 55, Ref. SERA|
EIA: Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2015, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm
IER: T.F. Stacy & G. S. Taylor, The Levilized Cost of Electricity from Existing Generation Resources, June 2015 http://instituteforenergyresearch.org/wp-content/uploads/2015/06/ier_lcoe_2015.pdf
LAZARD: Lazard, Levelized Cost of Energy Analysis 9.0, 17 Nov. 2015, https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf
LBL: Ryan Wiser, et al., 2014 Wind Technologies Market Report, Aug. 2015 https://emp.lbl.gov/sites/all/files/lbnl-188167_1.pdf
SERA: M. Makyhoun, et al. Utility Solar Market Snapshot, May 2015 https://www.solarelectricpower.org/media/322918/solar-market-snapshot-2014.pdf