Special report: Where to invest to win the energy race

Fossil fuels have a limited time as viable sources of energy. And I’m not talking about saving the planet or carbon taxes, simply economics.

Coal, gas, oil, all have economics based on a “scarcity curve” – the more we use them, the deeper we need to dig to find more and more expensive they become to extract. Solar and battery power is on a “technology curve” the more the world produces, the cheaper it becomes.

We will reach an “energy parity” where “technology curve” become an upper bound for the “scarcity” curve – the price of energy won’t exceed the cost of Solar+Batteries. Solar+Batteries are the “killer app” – extremely scalable once they reach an acceptable cost. The trillion dollar question is what is that price? If it can be reached in 5 years then there are major implications for stocks right now. If it is 20 years then investors can relax.

They should not. All the current trends point to energy parity being sooner rather than later for electricity.

Oil has other issues too – backup generation is being disrupted right now, cars will take longer – which will also damage its demand outlook.

The Numbers

There are the big picture numbers. All numbers are USD/kWh for international comparability and expressed as “levelised cost of energy” which tries to adjust for the up-front cost of building power plants or solar arrays, the different lives of assets and tax issues. The numbers rely on a lot of assumptions and should be treated as approximate.

Utility Electricity numbers:

  • Coal power: About $0.05 for the power plant operating costs plus $0.02 for coal (at $50/t) or $0.03 (at $100/t). So total cost = $0.07 to $0.08
  • Gas power: About $0.02 for the power plant (combined cycle) operating costs plus $0.02 for gas (at $3/mmBtu) or $0.06 (at $9/mmBtu). So total cost = $0.04 to $0.08
  • Oil power: About $0.23 from a diesel generator
  • Solar: About $0.06. Higher in less sunny areas.
  • Solar + battery:  If you just want to shift some of the daytime into the evening peak then about $0.14. To get round the clock, around $0.18.
  • The power of compounding: Costs have been decreasing about 20% per annum for both batteries and solar. If this continues then in 5 years the above solar+battery costs will be $0.05 and $0.06 respectively.

Retail Electricity numbers:

  • Retail Prices: US, China, India about $0.15. Australia $0.20-$0.30. Japan $0.25. Europe $0.30 (varies widely – Germany = $0.40)
  • Time of Day charging: The above charges are averages. Time of day charges vary widely, but Off-peak prices of less than $0.10 and peak prices greater than $0.40 are indicative of the range.
  • Rooftop solar: About $0.14. Higher in less sunny areas.
  • Rooftop Solar + battery:  If you just want to shift some of the daytime into the evening peak then about $0.44. To get round the clock, around $0.59.

Solar Cost Trends

However you measure it, the cost of solar has fallen dramatically relative to other energy sources:

Long Term solar cost
Long term solar cost
Levelized cost of energy in the US

This graph oversimplifies the issue, and there is a large asterisk on solar and wind costs in that solar only supplies power during the day, and wind is intermittent. What they need is something to store the power, and fortunately batteries are on the same type of price curve:

bbbatteries

This is greatly aided by the fact that a few billion people worldwide carry a device with them everywhere that they would like to have a better battery life. So, the best minds that money can buy are pretty focused on the task. Battery prices will continue to fall.

There are battery options other than the Lithium Ion batteries shown above, another technology may supersede it.

Putting batteries together with solar gives us two options: (1) full shifting where we look at having a large battery in order to generate power throughout the night and (2) partial shifting where we look at having a battery to shift some of the power from the day to the evening peak use:

Levelised Cost of Energy Comparison

Solar Problems

The main issue is that solar produces power during the day, and so we look to be generating an excess of power during the day and a shortage at night.

Solar energy has a lower marginal cost (effectively zero marginal cost) than gas or coal, and so the “duck curve” (see below) will only get worse:

powerduck

I expect this to be a permanent feature of the system going forward. i.e. electricity prices during the day to be much lower than evening prices.

Detailed Prices

First some disclaimers. I have greatly simplified all of these figures to illustrate the point. There is lots of debate about the exact levels for all of these prices because the calculation is not that simple, and the region or country influences the numbers. I have generally used the most recent reasonable price that I could find and where various numbers existed I took the lower price for all technologies.

ice_screenshot_20170314-135840

There is a lot to unpack in this table.

Utility Solar at 6c is now in front of coal, and in front of natural gas at Australian and Asian prices. Natural gas is still cheaper in the US.

You will note that natural gas plants are cheaper than coal, but more sensitive to the price of natural gas than coal plants are to the cost of coal.

It also shows why the current high prices in Australia for natural gas are sowing the seeds for its own demise.

The battery prices shown here are for shifting solar in particular. This is not the same as the current energy crisis in South Australia – that is a matter of smoothing intermittent sources and has different economics.  Gas peaking plants (which are used for intermittent power) run at about $0.20-$0.30 per kWh and the battery costs above would be higher for intermittent use. Most recent large-scale studies have shown that batteries are cost effective for the grid at the margin to smooth the peaks and troughs, but not for widespread adoption.  The 100-day Tesla batteries would have the same profile.

Future Prices

There is a range of different outcomes we could see for prices.

Two base case scenarios are solar+battery costs fall at 10% per year for the next five years, another at 20%.

In the last 5 years costs have fallen around 20% per year. Given how low solar costs are, the more important assumption is battery prices.

ice_screenshot_20170314-141553

Rooftop Solar

I have deliberately left Rooftop Solar out of the above table, as they are less comparable than you would think. Roof-top solar has costs of around $0.14 which is much higher than the costs above.

But that is not important. Rooftop solar is not competing with a coal plant, or even with utility solar.

Rooftop solar is competing with grid power + grid infrastructure. It is an important distinction.

I don’t care whether my rooftop solar produces cheaper than the local coal-fired power station, I care whether it produces at a cheaper rate than I pay for power – and it does:

ice_screenshot_20170314-142244

The issue is that panels produce power during the day when everyone else’s panels are also producing power, and so unless I use it myself to offset the above charge, I get paid a fraction of what the power company will charge my neighbour for using my spare electricity. Also, the peak rate (in the evening) for time of day pricing is much higher than during the day.

At $0.44 for partial shifting (which is basically generating enough power to get you through the evening peak), having some batteries is very close to being profitable for anyone on time of day charges. A lot of this price comes from the discount rate, so if you are prepared to accept a lower return (and lock in electricity prices) then partial shifting can be worth it at current prices.

But batteries aren’t yet a “no brainer” cheaper option.

Looking at the 10% cost reduction and 20% cost reduction scenarios again:

ice_screenshot_20170314-142802

The central question raised by the above table is if everyone starts going off-grid who pays for the poles and wire, do we end up in a “death spiral” where more people leave the grid, raising the cost for those who remain which means more people leave etc. Sorting that out is going to be a battle of vested interests.  Richer people will leave the grid when it becomes economic (as they can afford the up front cost), leaving renters and the poor left paying higher bills to account for the transmission assets. Governments will have three options:

  1. Prevent retail electricity price rises, stand up for the poor and make the asset owners pay the cost of their mistaken investment
  2. Socialise the losses and bail out the transmission asset owners
  3. Let the asset owners raise prices, shift the cost of adjustment onto the poor

While option 1 would be preferable, option 3 will be the path of least resistance. The lobbyists will no doubt be hard at work on option 2 in case any government have the fortitude to explore option 1.

There is lots of solar

This chart from the IEA has lots of problems, it is understates the effect of renewables by showing annual potential for renewables vs total potential for non-renewables, and then offsets that error in the other direction by grossly overstating solar.

However, the thrust is largely right: solar is a massive, largely untapped, source of energy.

solarresources

Source: Perez, M. Perez, IEA (2009,2015)

Maybe there will be an alternative technology breakthrough which drives electricity prices lower more quickly. It’s possible. However, for investors the main game is solar – it’s very large and it has a history of steep cost reductions.

Other renewable technologies will contribute to lower prices at the margin, but solar is the main issue for electricity costs.

Picking solar winners will be difficult

It is hard to pick solar winners – there are so many competing technologies that are improving, all with different economics:

solarefficiency

Keep in mind that this chart is a comparison of conversion efficiency – not of economics.  A 20% efficient (low cost) thin film technology that can be “painted” onto structures might be much cheaper per kW produced than a 46% multijuction cell.

Net effect is that you can try to invest in a manufacturer, but for all you know their technology will be superseded by a university somewhere.

Solar Resources

It matters whether you are in a sunny location or not.

Cities like L.A., Sydney, New Dehli will find solar costs 20% cheaper than somewhere like New York, Beijing, Tokyo as they simply get more sun. At the other end of the spectrum, London or Moscow get about half the solar resources of L.A. or Sydney:

worldsolarresources

Source: Solargis

You will also note from the above chart that solar resources are pretty good in most emerging countries. As well, emerging markets are where all the growth is – in most developed markets electricity use is falling on a per capita basis:

ice_screenshot_20170314-145010

Thankfully (for anyone who believes climate change isn’t a UN conspiracy), as developing markets increase their energy capacity going forward, the economics are going to tilt more and more in favour of solar.

Summary

At the moment, it looks like 7-10 years until we hit parity if current cost reductions are maintained. And don’t sleep on rooftop solar + batteries – they are a lot more expensive than coal, but retail power prices are a lot more expensive than wholesale. There is a decent chance that rooftop solar + battery users going off-grid start a “death spiral” for electricity transmission.

Battery costs are the major determinant at this point – if the rate of improvement slows then it may take 15-20 years. The base case is that battery improvement will be sustained, but it’s far from a given – this is the assumption to watch.

Power prices during the day are going to continue to fall over the next few years as we end up with a surplus of power from renewables. This will actually drive the pick up in batteries – the bigger the difference between the day price and the evening price the bigger the incentive for batteries.

The US is not the market to watch – energy costs are lower there than almost any other developed market. A better indicator of the future will be developments in Europe.

So, how does this affect investments:

  • Coal/Gas: Coal and gas will not cease to be used when we hit parity,  it is just that the price will be limited to no more than solar+batteries, and that cost will fall year after year. Any investment in these companies should be done with falling commodity price expectations – i.e. value them in run-off. There may be short-term shortages/price spikes, but these are selling opportunities. Increases in electric car penetration may stall the downward trend for a few years.
  • Solar companies: Solar manufacturers are difficult – the technology is moving too fast to work out if there will be a “winner takes all”. Service providers to the solar industry are probably a better investment (if you can find one that’s not already very expensive). We have been kicking the tyres of some of the semi-conductor stocks that manufacture “commodity-type” parts for solar companies – not a sexy area of the market (and thin margins) but at the right price some of these stocks are interesting.
  • Industrials: Companies that have high electricity bills during the daytime (or can shift costs to the daytime) will benefit. There are a number of European materials and refining companies that have struggled to compete with US companies because of the lower-cost US energy.
  • Oil: At the margin, less diesel will be used for power generation in remote areas. Expect this to continue. It is not a large part of the oil market, but it will mean oil demand will be weaker than they would have otherwise been.
  • Electricity Transmission: Will they get bailed out, will they be allowed to increase prices to offset falling customers, or will they take the pain of the “death spiral”? It is a country by country proposition – lots of risk in this trade.
  • Electricity Production: The toughest thing about an investment today for these companies is that your competitor who builds a solar array next year will have lower costs than you who built last year and so your competitor can handle lower electricity prices. Plus the regulatory risks from the “death spiral”. Another risky trade.

None of this relies on increased carbon taxes. But increased carbon taxes will bring forward the price parity point.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

Damien Klassen is Chief Investment Officer at the MB Fund launching in April 2017.

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Special Data Notes for commenters

Any time we post on the economics of oil or coal the astroturfers appear in the comments section.

So, I’m just heading off a few of the comments that are sure to appear.

The bulk of the data that I have used has been sourced from OpenEI, Bloomberg, the EIA and Lazard.

I’m sure there are astroturfers that have comprehensive links to data that they are sure will prove that coal and oil will rule the earth for decades.

Rather than commenting here, please submit your data to any of the above four organisations and when they incorporate your insights I’ll issue new analysis.

Comments

  1. One of the keys, is the time needed to make the change. Here in Australia, renewable energy accounts for about 6% of the current total energy source. The task of changing that is immense and will take decades. Just how we run any sort of economy on the Gigawatt scale that is currently employed, using solar + battery in the future is not clear.

    A clear winner will be battery technology. But which technology and for what application?

    In the meantime, over the coming 20 years a least, there will be demand for gas, since building all that renewable infrastructure will require a lot of energy, which is not available from renewable sources.

    • Despite being useful information as it is this report ignores the hydro storage elephant in the room.

      I might be wrong but, as hydro storage appears to be very cost efficient (and environmentally safe) as a means of providing peak power, hydro storage with the added expense of grid transmission cannot be left out of the comparative energy generation cost equation. It has been left out in this report and possibly renders this report useless.

      • You may be referring to the MB report?

        My work focused entirely on gas. There was no consideration of renewables or any type of battery storage in this work.
        For the individual punter, gaining access to pumped hydro is limited to startup company Genex Power, which is aiming to build a project around the old Kidston gold mine in Queensland.

  2. GunnamattaMEMBER

    Thats a great wrap – thanks for all the effort.

    A recent brief suss out of the people I work with has brought me to the view that lots of people either have solar panels (I do) or want to soon, but that one of the disincentives for this is the (current fact) that unused energy generated by the house is basically given away free to the electricity retail companies – who are reviled across the board. Any sign of batteries being remotely less cost intimidating than they are would have people going into solar overdrive. Just getting rid of the ‘service’ charge is a big incentive for many.

    The other thing that has occurred to me is there is probably some sort of technology out there that would enable houses close together to of link up to smooth out their usage possibly, but also to go down a joint battery arrangement.

    • There are some micro-grid solutions out there – the military, hospitals, data centres, universities use them. Most of these have back-up diesel generators but will probably switch to batteries over time.

      The costs are basically half way between utility scale costs and rooftop solar costs – and make a lot of sense.

  3. DarkMatterMEMBER

    The missing link in this analysis is the idea that with Solar energy not being resource constrained, and with manufacturing becoming automated, the inevitable result is that “money”, as we know it, loses its value. What is the unit of value? Human labour? No.

    Once [Solar Panel + Battery + Robot + Factory unit] produces more that itself in its lifetime, you pass through a singularity and effectively making stuff is over-unity. That turns everything on its head. Investment, profit, free market – all of those become unhinged. We are already seeing the precursors to this in the current financial system. People who have spent their lives in finance will naturally reject these ideas. Possibly we will have a constructed simulacrum of the past system to prevent chaos, but in the end, the decline of the scarcity economy will dictate the mechanics of the future. The future is based on entropy transactions, and our money system has already mostly transitioned to entropy trading instead of value trading.

    • Please present a single example where RE is not entirely dependent on fossil fuels for the manufacture, installation and maintenance of the blessed gadgets?

      Has anyone tried to work out how many thousands of barrels of oil and thousands of tons of coal go into the manufacture of each wind-turbine?

      When you have worked that one out, we will start to worry about “robots” 🙂

      “How Much CO2 Gets Emitted to Build a Wind Turbine?”

      https://stopthesethings.com/2014/08/16/how-much-co2-gets-emitted-to-build-a-wind-turbine/

      “Wind farms use fossil fuels for construction and operation”

      http://www.theaustralian.com.au/opinion/columnists/gary-johns/wind-farms-use-fossil-fuels-for-construction-and-operation/news-story/19709de8a42f273efcfb03e228c85316

      • “Has anyone tried to work out how many thousands of barrels of oil and thousands of tons of coal go into the manufacture of each wind-turbine?”

        They actually have. Solar and wind more than make back the energy used in their production.

        https://www.theguardian.com/environment/2012/feb/29/turbines-energy
        http://www.sciencedirect.com/science/article/pii/S136403211500146X
        http://reneweconomy.com.au/dispelling-myth-of-energy-payback-of-renewable-energy-systems-75607/
        https://phys.org/news/2016-12-solar-panels-repay-energy-debt.html
        https://www.sciencedaily.com/releases/2014/06/140616093317.htm

        Why do you bother? You’ve been proven completely wrong. All you have is these weird links from total crack pot groups. You are like a flat earther at this stage, its just sad.

      • Nathan,

        A common mistake made by economists and bean-counters is that energy is just that – energy. They measure it in GW-h. This is actually a gross simplification because the electricity that a wind-turbine could make on a windy night when no one needs the stuff is worthless. Often, the turbine has to be feathered or turned side-on to the wind. In fact, it can have a negative price.

        “Wind power was so plentiful in Texas that producers sold it at a negative price”

        http://www.slate.com/articles/business/the_juice/2015/09/texas_electricity_goes_negative_wind_power_was_so_plentiful_one_night_that.html

        “UK power prices go negative as renewables boom distorts market”

        https://www.ft.com/content/5164675e-1e7e-11e6-b286-cddde55ca122

        On the other hand, when there is too much or too little wind and the turbines are turned off, the price of electricity can become astronomical – which is what happens in South Australia.

        “In South Australia, wholesale prices are regularly spiking to the market-allowed maximum of $14,000 per megawatt hour.”

        http://www.abc.net.au/news/2017-03-09/political-leadership-needed-to-secure-future-of-energy-supply/8339116

        To put this electricity price in perspective, the price of electricity in the USA varies between AUD 50-80 per megawatt-hour. The SA price can be 200 times the US price.

        Fossil fuels are different. They are both a source of energy and a STORE of energy. A ton of coal or a barrel of oil in the ground will maintain its energy potential indefinitely – until it is needed. One KG of diesel has as much energy stored in it as 50 KG of the best batteries. This means that you don’t lose it on windy nights and you can use it when the price of electricity goes through the roof.

        Please reflect on what I am writing because lots of highly-paid people offer “advice” but don’t understand reality.

      • DarkMatterMEMBER

        @Alfred

        You are looking at things in the rear view mirror. Everything we have is the product of Fossil Fuel economy. That is how we got to this point. Technology is in a state of transition, so how it will work in the future is the issue, not how it worked last decade.

        There is a fundamental difference between a Solar Panel and a barrel of oil. The solar Panel has the ability to regenerate itself. To build it requires mostly electricity (molten silicon). Once built it produces electricity – a 200W panel ($50) will produce about 7MWh over 20 years. At $0.10 per KWh, that is about $700. That is over unity. It can effectively replace itself. The silicon can theoretically be recycled, so just energy is required to replace itself. The barrel of oil just gets burnt and it’s gone. You need to dig up another barrel. So far that looks like a finite resource.

        Couple the over unity property of the solar panel and the ability of computers to replicate designs at zero cost, and you have a new deal. Look to the future. The basic physics of energy and manufacture are changing. It is pointless to try and prove the future can only look like the past, and that is essentially what your argument is.

    • Good comment.
      It is by now clear that most scarcity is artificially created and sustained, often at a greater energy cost than it simply moving to post scarcity.

      I often contemplate how much of it is due to concerns about post-scarcity turning into post-human or simply due to the pharaonic aspirations of a certain segment of the population to once again own slaves.

      • “pharaonic aspirations of a certain segment of the population to once again own slaves”

        Actually, the Ancient Egyptians never had slaves. Sure, they castrated captured foreign soldiers (penis only) and put them back to work as warriors, but that is not the same thing. You see, Egypt was an agricultural country with no shortage of servants. On the other hand, nomadic peoples (Jews and Arabs) needed slaves because they had no servants. The pyramids were built by ordinary people for wages and they took holidays. Papyrus documents recently discovered near the Red Sea prove it:

        “The World’s Oldest Papyrus and What It Can Tell Us About the Great Pyramids. Ancient Egyptians leveraged a massive shipping, mining and farming economy to propel their civilization forward”

        http://www.smithsonianmag.com/history/ancient-egypt-shipping-mining-farming-economy-pyramids-180956619/

        BTW, the Jewish Exodus was not from Egypt because they were never prisoners there – but that is another story. 🙂

        PR and propaganda has been around for an awfully long time.

  4. Some very good points about the network costs and potential outcomes. One point that gets missed a lot is the total focus on electricity generation only. In Australia we consumed a total of 5,919 PJ of energy (Ref Aus Industry Update 2016) of which electricity was only 28% of the total, transport made up 1612 PJ and solar and wind generated less than 1.4%. Wind and solar on that amount of energy would have an enormous capex cost just to replace even if at price parity for the total system. Are you writing off hydrocarbons to early as an investment, ethical or not? No I’m not a troll or paid by anyone for comments although I know R2M and others will slag off any comment not aligned to the movement. I like the concept of solar, wind and the like but the costs are huge to replicate a system, financial losses will be likewise and who is going to pay for the total energy demand not just domestic electricity. Don’t get caught in the hype about current renewables and their real impact on total energy generation/supply it could be an investment mistake. That said there will be opportunities for systems that achieve price parities in the domestic market agreed. Nuclear also gets totally written off technically (politically yes not possible in OZ) and financially but at present it has the energy density required to replace coal and gas in the short term if there was a real price on carbon.

  5. When you start such an article with false premises, the conclusions are bound to be misleading.

    The most obvious weakness in this article is that you need fossil fuels in order to manufacture, install and maintain so-called Renewable Energy gadgets. Wind-turbines need massive amounts of oil and coal in order to produce their materials and components. The same is true with PV cells. It is totally impossible – and always will be impossible – to produce the raw materials, manufacture, install and maintain these items without the fossil fuels.

    Few people are aware that large wind-turbines operating in the North Sea, for example, have diesel engines to turn over the rotor when the wind is absent – to protect the bearings. The periods with no wind can stretch into weeks – as happened last December. The people who maintain these monstrosities need to get there by boat – powered by diesel engines and use helicopters.

    Their permanent magnets use tons of “rare earth” minerals. These are not rare, but are so dispersed that it is extremely expensive (and polluting) to produce them. There is no way that output of these elements can be increased by orders of magnitude without a colossal increase in their prices.

    The chart showing the drop in the cost of PV is entirely misleading. The cost of the inverter, installation, land, security and maintenance (keeping it clean) are not dropping. Few people realise that inverters last for much less than the PV they are attached to and need to be replaced several times over the lifetime of the PV.

    The most obvious weakness of all is that batteries are extraordinarily expensive and the materials which go into manufacturing them have been going up in price. The “Lithium-ion” battery should really be called the “Cobalt-Lithium” battery since cobalt is the major ingredient.

    “Tesla’s Evolving Cobalt Nightmare” – “Without a miner miracle (pun intended), Tesla Motors’ EV dream will soon become a cobalt nightmare.”

    http://seekingalpha.com/article/4027400-teslas-evolving-cobalt-nightmare

    I hardly need mention that you cannot ramp up the cobalt supply by a factor of a few hundred without affecting the cost. 🙂

    In Australia, batteries need to be kept cool in the summer or their lifetime and performance decreases dramatically – that needs energy, housing, A/C and maintenance. In cold countries, batteries need to be kept warm. Oh the irony!

    The electric consumption of the average Australian is over 10KH-h per day. Please try and work out how big a battery installation would be needed to handle the periods with no sun and little wind. The costs mentioned in the article neglect these costs – because they are pushed on to the grid.

    The best proof that RE is a scam is the fact that, in Europe, the cost of electricity is highest in the countries most committed to RE. Please look at the chart in this article. In Germany and Denmark, it is almost 3 times the cost in Poland, Turkey and Hungary.

    “European Electricity Prices Versus Installed Wind and Solar Capacity”

    http://euanmearns.com/green-mythology-and-the-high-price-of-european-electricity/

    In Germany at this moment, solar is producing 0GW electricity (38GW installed) and wind 10GW (capacity is 24GW). Fossil fuels and nuclear are producing 53GW

    https://www.energy-charts.de/power_de.htm

    https://www.energy-charts.de/power_inst.htm

      • Thanks.

        A few years ago, the paid-for media “discovered” that you could turn water into hydrogen. I guess someone remembered an experiment their teacher did in class. In no time, politicians jumped on to this “solution” and the airwaves were full of this “Hydrogen Economy” crap. Now, as though by magic all is forgotten and the shamans have stopped bringing it up.

        It took them a few years and vast amounts of hot air to “discover” that the only practical way to produce hydrogen was from natural gas. 🙂

        “Hydrogen Economy: Boom or Bust?”

        https://cleantechnica.com/2015/03/19/hydrogen-economy-boom-bust/

        The RE nonsense is much more dangerous – because it is raising enormously the cost of electricity which will lead to lower productivity, unemployment and impoverishment.

    • Ronin8317MEMBER

      It is all about the trend. Fossil fuel is not getting cheaper, while solar is. It does not matter whether the energy is stored in lithium batteries, molten salt, chemical fuel cells, graphite (a real game changer and made from coal), or water pumped up higher : once solar is cheaper no new coal plants will be built.

      • Solar will never be cheaper – not when it needs to be backed up for long stretches by FF. If it were backed up by batteries, the cost would be many multiples of FF alone.

        In the universe inhabited by “believers”, the sun is always shining and the wind is always blowing nicely. If the wind is too strong, it is called an “anomaly” and all is forgiven. Sorry mate, you cannot operate on averages, it is the extremes that matter. Electricity is not an optional extra.

        http://takvera.blogspot.com.au/2017/02/thermal-wind-and-demand-forecasting.html

    • Nice misdirection. The post is about electricity generation. You veer into twisted fossil fuel for transport and input to manufacture diatribe.

      Given fossil fuels importance as manufacture input, shouldn’t it be reserved for such uses while electricity can be generated as cheaply by other means?

      Your argument that offshore wind turbines shouldn’t be built because someone needs a diesel powered boat to get to them should get you fired from your shill job.

      Dad! Think I caught meself an oil troll.

      • So how are you proposing to make, install and operate RE without fossil fuels? I am merely pointing out the fact that RE is fake – because it is not “renewable” by any stretch of the imagination.

        If so-called RE electricity were “cheap” then why does it raise electricity prices everywhere?

        Here is a RE expert – who installed a great many wind turbines in the North Sea – recanting and admitting that it is a failure:

        “Vahrenholt was once the head of RWE’s renewable energy arm, Innogy, and responsible for the installation of offshore wind parks. However, after years of poor performance, discovering that the climate science was unclean, and learning of the harm wind parks pose to the environment, Vahrenholt has since been calling for a fundamental energy policy course correction in Germany.”

        http://notrickszone.com/2017/03/05/leading-renewable-energy-expert-says-germany-sacrificing-nature-for-green-energies/

        The funny thing is that the only newspaper to print this story is in Switzerland – where the people voted to retain nuclear. German newspapers will not touch it. To them, it is toxic.

        However, some newspapers are tentatively – after the loss of hundreds of billions of Euros by consumers and companies – admitting that all is not well.

        “‘Die Welt’ Article Warns: German “Energiewende Risks Becoming a Disaster” …As Costs Explode!”

        http://notrickszone.com/2017/03/08/die-welt-article-warns-german-energiewende-risks-becoming-a-disaster-as-costs-explode/

        Do we really need to pretend that Australia is “different” – our engineers are better, our climate is under control etc?

    • Thanks for the detailed response.

      I need to re-iterate though that I’m not calling for the end of fossil fuels: “Coal and gas will not cease to be used when we hit parity, it is just that the price will be limited to no more than solar+batteries, and that cost will fall year after year.” I agree that there will continue to be many uses for fossil fuels for a long time. For investors though, commodities are priced at the margin – a fall in demand has a large impact on commodity prices.

      For your costs: inverter, installation, land, security and maintenance – they are all explicitly incorporated into the numbers I have shown. They are based on OpenEI or Lazard numbers generally. I disagree that these costs aren’t falling. They aren’t falling at the same rate as solar cells but they are falling – mainly on economies of scale. It is a lot cheaper to produce 10,000 inverters than it is to produce 1,000. Installation costs fall as installers become more experienced.

      For Europe being the most expensive, yes is it. absolutely. But that’s because renewables have been more expensive than renewables. The point of the post is that economics are changing. Plus Europe have a carbon tax, and they don’t have very good solar resources. And linking to a page that shows 0GW of solar at night is disingenuous – it detracts from your point rather than adds to it.

      • “But that’s because renewables have been more expensive than renewables”

        I think you may wish to correct this.

      • “And linking to a page that shows 0GW of solar at night is disingenuous – it detracts from your point rather than adds to it.”

        I did it because that was the value at that instant. If you wish me to cherry-pick, then try looking up on the same website the month of December 2016. You will find that Germany was importing electricity on every single day of that month and its turbines and solar were operating at under 10% of rated capacity on average. Sometimes they were both producing no electricity.

        https://www.energy-charts.de/power_de.htm

        You will find that at 16:00 on 18/12/2017, solar was 0GW, wind 9.71GW, conventional 38.95GW and imports 12.57GW

        Germany is in the lucky position of being surrounded by countries with surplus conventional power-generation – hydro from Norway, coal from Poland and the Czech republic, nuclear from France and the Czech republic. Australia is not so lucky so Australia will need 100% backup to its RE. Once that is factored in, your article is proven to be grossly misleading.

      • Thanks Alfred.

        Switching from checking solar production at night to checking solar production at 4pm on the 3rd shortest day of the year in Germany clears up the point of your complaint.

      • Damien,
        I am sorry if I may seem a bit harsh. The problem is that electricity is much too important a subject for word-mincing. Reality is unforgiving and Australia has a hugely variable climate.

        The people of Brisbane were extremely fortunate not to lose 1 million in the floods of a few years ago – because of bad decisions made by politically-correct engineers who were trying to save the water because they had been brainwashed into believing that the drought was permanent. The Brisbane river gauge had been 80% higher twice in the 19th century.

        “In our analysis, the dam operators made sub-optimal decisions by neglecting forecasts of further rainfall and assuming a ‘no rainfall’ scenario.”

        https://www.riskfrontiers.com/pdf/water-03-01149.pdf

        If there is a serious collapse of the electric systems of Victoria and South Australia, it will result in many unnecessary deaths – not to mention the ruin of many businesses and livelihoods. I cannot put it more bluntly. Ideology must take a backseat on this one. You cannot operate on averages.

    • It is kind of exciting to see astroturfing first hand. Makes me wonder who’s paying and what the going rate is. Interesting stuff. Thanks Alfred.

      • nicktee

        When logic and reality get in the way, resort to ad hominems. Clearly, you have no argument to present.

        Shame history, geography, physics, maths not taught properly at Australian schools – let alone critical thinking. 🙂

  6. I hate to always be ‘that guy’, as I have nothing against renewable energy. Actually I think Solar PV is practically a step away from magic, given it’s one of the few power sources that doesn’t rely on spinning a turbine to generate electricity. But the question I have is this:

    Are these wind and solar per kw/h costs based on ‘nameplate’ generation capacity, or ACTUAL generation?

    It’s an important question because, in reality, wind turbines average a capacity factor (actual generation divided by nameplate generation) of about 20%. Solar averages a capacity factor of around 10%. Note that this does not take into account the issue of variability (i.e. even if you built wind power plants, and transmission infrastructure, with nameplate capacity equalling 5 times daily peak demand you would still end up having blackouts on a weekly basis).

    I recently did an analysis of German power generation using data provided by the Fraunhofer Institute (www.energy-charts.de). These statistics were calculated using monthly data:

    Wind:

    Wind Nameplate Max Generation: 33.86 tw/h per month (calculated)
    Wind Actual Max Generation (in a single month): 11.22 tw/h
    Wind Mean Actual Generation per month: 6.6 tw/h
    Wind Median Actual Generation per month: 5.99 tw/h

    Wind Median Capacity factor per month: 19.56%
    Wind Mean Capacity factor per month: 21.85%
    1 Standard Deviation for wind capacity factor (month to month, percentage points): 7.65

    And Solar:

    Nameplate max gen: 30.48 tw/h per month (calculated)
    Actual max gen in a month: 5.46 tw/h
    Mean gen per month: 3.09 tw/h
    Median gen per month: 3.19 tw/h

    Median Capacity Factor per month: 11.23%
    Mean Capacity Factor per month: 10.74%
    1 Standard Deviation for solar capacity factor (month to month, percentage points): 6.41

    And things look even worse when you examine the monthly max and min actual generation cap factors for both technologies. Wind gets down to monthly minimum of 11%. Solar gets down to 2%. I imagine if you drilled down to the daily stats you’d see many days, in sequence, where these sources are not producing any electricity at all.

    If your numbers above are based on the Lazard paper, then they’re unfortunately wrong. The Lazard paper makes the (insane) assumption that all power sources assessed will be running at 100% capacity at all times.