Are Sun and Wind much more expensive than we think? And how would we know?

Posted in: Comment, New Publications

In the Summer, the Economist's Free Exchange column had a feature on the economics of renewable energy which suggested that the costs of wind and (especially) solar power are much more problematic that thought.   The article begins:

"... whereas the cost of a solar panel is easy to calculate, the cost of electricity is harder to assess.  It depends not only on the fuel used, but also on the cost of capital (power plants take years to build and last for decades), how much of the time a plant operates, and whether it generates power at times of peak demand.  To take account of all this, economists use “levelised costs”—the net present value of all costs (capital and operating) of a generating unit over its life cycle, divided by the number of megawatt-hours of electricity it is expected to supply.  The trouble, as Paul Joskow of the Massachusetts Institute of Technology has pointed out, is that levelised costs do not take account of the costs of intermittency.  Wind power is not generated on a calm day, nor solar power at night, so conventional power plants must be kept on standby – but are not included in the levelised cost of renewables. Electricity demand also varies during the day in ways that the supply from wind and solar generation may not match, so even if renewable forms of energy have the same levelised cost as conventional ones, the value of the power they produce may be lower.  In short, levelised costs are poor at comparing different forms of power generation."

A complex analysis by Charles Frank, of the Brookings Institution, uses a cost-benefit analysis to rank various forms of energy.  The costs include those of building and running power plants, and those associated with particular technologies, such as balancing the electricity system when wind or solar plants go offline or disposing of spent nuclear-fuel rods.  The benefits of renewable energy include the value of the fuel that would have been used if coal- or gas-fired plants had produced the same amount of electricity and the amount of carbon-dioxide emissions that they avoid.  There's a helpful table that summarises these costs and benefits.  It makes wind and solar power look far more expensive than they appear on the basis of levelised costs.

If you thing there should be a dash for renewables, whatever the cost to the taxpayer or the economy), you'll not be troubled by any of this, especially if you're anti-nuclear.  However, if you're looking for a shift away from coal to an increasing amount renewable energy, you may have pause for thought.  The Economist ends by saying ...

"There are, of course, all sorts of reasons to choose one form of energy over another, including emissions of pollutants other than CO2 and fear of nuclear accidents. Mr Frank does not look at these. Still, his findings have profound policy implications. At the moment, most rich countries and China subsidise solar and wind power to help stem climate change. Yet this is the most expensive way of reducing greenhouse-gas emissions. Meanwhile Germany and Japan, among others, are mothballing nuclear plants, which (in terms of carbon abatement) are cheaper. The implication of Mr Frank’s research is clear: governments should target emissions reductions from any source rather than focus on boosting certain kinds of renewable energy."

All this sounded convincing to me – in a layman's sort of way – until I read the next edition when a lot of these views were systematically rubbished.  In all this, it's not so much a question of what to think, it's a question of how do you decide what to think, and the sort of issues to be brought to the mind when you are, inevitably, not an expert.  Carry on (critically) thinking, I suppose – but that seems a very inadequate answer.

Posted in: Comment, New Publications


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