1/02/2016

Cost per KWh


Let's be careful when we see published charts with the generation cost of renewable energy (we'll be reviewing here solar and wind, not hydro which can stand by itself and provide reliable output). 

We need to understand the following before accepting numbers at face value:

1. The value of energy depends on the time of the day / year that is is produced. Reliable and dispatchable energy tend to command a higher price in the market. Energy that is "dumped" into the grid can have little value or even a negative one (the grid needs to be paid to accept that surplus energy).

2. Bar some small off-grid operations, renewables need a pairing power plant in perpetuity. Thus in the cost of the system we have to add both the cost of the renewable installation PLUS the cost of the reliable power plant. In other words, renewables are almost always a duplicated investment and thus by definition have to be more expensive than a coal or natural gas power plant by itself. 

3. Basically, what renewables actually do is displace generation from reliable producers and this causes the cost of the kWh of the reliable producer to go up. Even though the fuel costs of the reliable producer drop, its fixed costs do not drop and thus their total cost per kWh increases. 

4. (Related to the one above). The reliable producer needs to stop, start, modulate its output, idle. This increases their CO2 emissions per kWh. This increase in emissions is seldom, if ever, considered in the emission curtailment of renewables. 

5. If the purpose of renewable energy is to reduce CO2 emissions then, per dollar / euro invested, these are almost certainly better options:
     5.1. Replace coal with natural gas.
     5.2. Replace coal with nuclear.
     5.3. Implement efficiency projects.
     5.4. Invest in insulation.

Bottom line, we have to consider the costs / emissions of the system when we plan to grow renewable energy capacity. Isolating a single component will certainly give us the wrong answer. Almost by definition renewable energy increases the costs of a system and does not reduce CO2 emissions as advertised, We just have to look at the German Energiewende to appreciate a real life example of this effect.

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