Green energy fanatics keep telling us renewables are coming cost competitive but the cost advantage of natural gas continues to be insurmountable for them.
A week rarely goes by at the EIA’s Today on Energy blog without some wonderful news on the cost advantage of natural gas. Yesterday’s post is a perfect example. The title, “Average U.S. construction costs for solar and wind continued to fall in 2016,” leads one to briefly suppose the green energy fanatics might have a point; that costs of renewables are getting cheaper and it’s only a matter of time before the green energy future arrives. That will, perhaps, someday become reality, but the cost advantage of natural gas is nowhere near being wiped out, let alone seriously being seriously challenged.
Like all Today In Energy posts, this one by Ray Chen is simply an unbiased recitation of the facts. Even the title, though slightly misleading for reasons I get into below, is accurate. Those construction costs are coming down on a per kilowatt basis, while the average cost of natural gas generation has gone the other way. Nonetheless, that’s anything but the whole story.
The following chart shows what’s happening at a glance:
A quick look at this chart reveals the progress of renewables with respect to construction costs. It is, indeed, significant and there was actually more solar and wind electrical generation capacity added in 2016 than natural gas. But, only a knave can ignore the following points, which are, in the end, determinative:
- Solar and wind are nowhere near being truly competitive with the cost advantage of natural gas. Solar, in 2016, was still 172% more expensive than natural gas. Wind was 82% more expensive.
- Only huge subsidies and ratepayer/taxpayer incentives have allowed more solar and wind to be built than natural gas. Subsidies cannot and will not go forever. Moreover, those subsidies distort the market and raise costs elsewhere. Solar, for example, only generates electricity when the sun shines and often produces too much when it’s not needed and none when it is. This means three things; (a) ratepayers are sometimes forced to pay to get rid of the excess energy, (b) back-up dispatchable energy is needed at all times and becomes more expensive per kilowatt and (c) duplicative infrastructure is now required. All these are costly and the longer the US continues such subsidies, the worse the problem gets. We only have to look at the German Energiewende for a vision of the dead-end future involved. It’s one of skyrocketing electric prices and increased emissions, not to mention a host of other problems having to do with duplicative systems.
- The real construction cost per kilowatt of electricity generated is much higher with solar and wind because both have much lower capacity factors than natural gas. The EIA data, in this instance, is presented in costs per kilowatt of capacity, but the proper and only fair comparison is in costs per kilowatt of electricity generated. Solar and wind have capacity factors that are typically less than half that of combined-cycle natural gas generation, for example. A solar system achieving a 33% capacity factor (generating electricity one-third of the time) will, therefore, cost as much as three times $2,436 per kilowatt displayed in the above chart ($7,300 per kilowatt). Natural gas at, say, only a 50% capacity factor (combined-cycle plants can hoy 66%) would have real costs per kilowatt of electricity generated of roughly $1,800. This means the construction cost advantage of natural gas is something on the order of $5,500 per kilowatt.
The last point is one illustrated in the article itself, when it discusses different types of natural gas fueled generation (emphasis added):
In 2016, 100 natural gas-fired generators, totaling 9.8 GW, were added to the electric grid. Costs averaged $895/kW, an increase from $812/kW in 2015. Of the 9.8 GW added, 3.6 GW were combustion turbines. Combustion turbines are the least expensive natural gas generating technology, and a large amount of combustion turbine capacity was added in 2016—more than twice what was added in 2015.
Even though combustion turbines have lower capital costs than combined-cycle systems, the improved efficiency of combined-cycle systems may make them more economically attractive. A total of 5.7 GW of combined-cycle capacity was added in 2016, despite capital costs nearly $300/kW higher than combustion turbines.
This is reflection of the capacity factor that works completely against solar and wind. Solar construction costs per kilowatt are something on the order of four times as natural gas (not to mention many times more land-consuming). Solar is theoretically cheaper to operate, of course, but overcoming the capital costs alone is huge burden.
Add in the costs of dealing with energy we don’t need, and providing backup to ensure we have it when we do it need it, and it quickly becomes obvious solar and wind cannot, for the foreseeable future, ever compete with the cost advantage of natural gas. It simply isn’t there and the only thing that sustains the dreams of green energy fanatics are the subsidies stolen out of our wallets by greedy pandering politicians. Yes, Governor Corruptocrat, I’m talking about you.
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