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Chu says big solar soon to be cheaper than coal and gas

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After  reading the resignation letter from the US Secretary of Energy Stephen Chu, a statement of such vision that you wonder why it is not catchy, one immediate question leaps to mind: So why can’t Australia have an energy minister like this? At either state of federal level?

Before we try and answer that, what does the energy chief of the world’s largest economy and energy user have to say about the challenges and possibilities in front of us?

The biggest takeout is the cost of big solar. One of Chu’s big initiatives was the SunShot program – launched just over two years ago with the aim of taking the cost of utility scale PV down to $1/W by 2020, at which price it would deliver energy at a levelised cost of energy (LCOE) of around $60/MWh, cheaper than coal, and cheaper than gas, even with the shale and fracking boom.

Chu has been talking about this for a while, but now it seems to be getting traction. “When we first discussed this goal, industry did not take it seriously,” Chu writes in his letter. “Today, they tell me that our input challenged them to rethink their road maps and now agree that it is an achievable goal.”

It is not as wild as it may seem. Bloomberg reports that First Solar has signed a power purchase agreement to deliver energy from a 50MW solar PV plant in New Mexico to the local utility for $59/MWh. That’s half the cost of new coal plants. It’s likely assisted by investment tax credits, but the clear sign is that it is getting close. It’s important to remember that the US, as well as China and India, and Australia for that matter, accept that solar will be cheaper than new coal or gas by the end of the decade.

The second big change Chu predicted was in the deployment of electric vehicles. Even if some sales expectation have fallen short, there are nearly 500,000 EVs and hybrid cars in the US, and Chu says the batteries developed for these vehicles will also revolutionize the electrical distribution system and the use of renewable energy.

And, as we have been banging on for a while (and been mocked by many within the industry for doing so), Chu notes that the combination of cheap solar, battery technology, and the arrival of  wind energy at grid parity in less than a decade means that new business models for the energy market need to be developed.

If it is not, he suggests, it will stand as a major barrier to their deployment. “Unless we develop new business models with utility companies and other stake holders, we will not be able to take full advantage of the accelerating pace of technology.” This fits in with my theory that technology advances will do most of the job required, so long as the politicians stand out of the way and don’t seek to protect the incumbents with regulatory and yet more subsidies.

Chu notes that the massive engagement by the private sector in the last two years – including from the likes of Warren Buffett, Bank of America, Wells Fargo and Google, – means that renewable energy investment has become mainstream.

“Originally, skeptical lenders and investors now see that renewable energy will profitable,” he writes. “These investors are voting where it counts the most – with their wallet. As one CEO recently commented, ‘Solar is now bankable. When solar was perceived as more risky it required a premium’.”

He also defended the loan program instituted by the DoE, and lamented the attention given to the likes of Solyndra.  “While critics try hard to discredit the program, the truth is that only one percent of the companies of the companies we funded went bankrupt. That one percent has gotten more attention than the 99 percent that have not.

“The test for America’s policy makers will be whether they are willing to accept a few failures in exchange for many successes. America’s entrepreneurs and innovators who are leaders in global clean energy race understand that not every risk can – or should – be avoided. Michelangelo said, ‘The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark’.”

Those last paragraphs seem particularly relevant for Australia, heading as we appear to be towards a conservative election victory, the threatened repeal of the carbon price and the promised demolition of the Clean Energy Finance Corp, which is similar in intent to Chu program at DoE, but is dismissed in the mindless reactionary energy politics produced by  Ian Macfarlane, Andrew Robb Joe Hockey as a sinkhole for new, uneconomic technologies. Perhaps they should look at the recent history of solar PV.

Chu’s statement comes as the US announces that its emissions have fallen to their lowest level since 1994, proving that you do not necessarily need a carbon price to achieve emission reductions. But if you do choose Direct Action, then those policies need to have bite.

The US has done it by imposing strict energy efficiency standards, and strict pollution and emission controls, which has forced nearly 100 coal-fired plants to close. The Australian conservatives propose Mickey Mouse programs and government handouts to help those coal-fired utilities to achieve what should be a legal requirement. That money is better spent on developing new technologies, as is done in the US.

The entire letter of Chu’s is worth a read. But here are some of the other main takeouts.

– The United States spent roughly $430 billion  on foreign oil in 2012 –  a direct wealth transfer out of our country. Billions more are spent to keep oil shipping lanes open and oil geo-politics add considerable additional burdens. Although our oil imports are projected to fall to a 25 year low next year, the US still pays a heavy economic, national security and human cost for its oil addiction.

– The average temperature of our planet is rising, with majority of the temperature increase occurring in the last thirty years. During the three decades from 1980 to 2011, the number of violent storms, floods, droughts, heat waves, wildfires, as tabulated by the reinsurance company Munich Re, has increased more than three-fold. They also estimate that the financial losses follow a trend line that has gone from $40 billion to $170 billion dollars per year. As the President said in his recent Inaugural Address, “some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.”

–  The overwhelming scientific consensus is that human activity has had a significant and likely dominant role in climate change. There is also increasingly compelling evidence that the weather changes we have witnessed during this thirty year time period are due to climate change.

– Virtually all of the other OECD countries, and most developing countries including China, India, Mexico, and Brazil have accepted the judgment of climate scientists.

–   Many countries, but most notably China, realize that the development of clean energy technologies presents an incredible economic opportunity in an emerging world market. China now exceeds the US in internal deployment of clean energy and in government investments to further develop the technologies.

– While we cannot accurately predict the course of climate change in the coming decades, the risks we run if we don’t change our course are enormous. Prudent risk management does not equate uncertainty with inaction.

–  We have a moral responsibility  “to the most innocent victims of adverse climate change.” Those who will suffer the most are the people who are the most innocent: the world’s poorest citizens and those yet to be born. There is an ancient Native American saying: “We do not inherit the land from our ancestors, we borrow it from our children.” A few short decades later, we don’t want our children to ask, “What were our parents thinking? Didn’t they care about us?”

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  • Howard Patrick

    Add Martin Ferguson to the names Tony Abbott, Ian Macfarlane, Andrew Robb, Greg Hunt and Joe Hockey and you have a list of politicians who will run a mile from anything Stephen Chu has to say.

    Not one of them would be prepared to debate the issues raised by Chu – other than a blatantly political way.

    All are determined to keep their heads in the ground.

  • Michael Adams

    Where can we obtain the “Munich Re” tabulated data of extreme weather events? Surely this is the information that needs to be made VERY public. Whenever I discuss such event with people locally, all I get is a very narrow minded point of view concerning what is happening in Australia only, that this sort of weather is part of our NORMAL national weather patterns, the local farmer knows more about it than these scientific whizz kids who are still wet behind their ears, etc, etc. Until Australians get the World wide picture, they are happy to believe that what is happening in Oz is just part of our normal cycle of weather patterns, “shee’l be right mate”, we are battlers, it is inevitable, we just have to ride it out and get on with life. One would have thought that with what is happening in Queensland, somebody would be asking questions as to why this is happening more frequently! It is very noticeable that the Politicians are avoiding any mention of Global Warming, and I don’t hear the Insurance Companies making a noise either. It seems that we must not rock the coal export business at any cost. It is about time somebody in Treasury carried out an investigation to see if the overall cost of recent fires and floods exceed the royalties and tax revenue received from coal exports. If it does, why are we still allowing such exports, let alone issuing new mining licenses to dig the stuff up! Most of the profits appear to be going overseas, & Australians have to suffer the consequences.

    • Concerned

      “Until Australians get the World wide picture, they are happy to believe that what is happening in Oz is just part of our normal cycle of weather patterns”
      They are ,just check BOM for example, and look at their graphs over the last 150 to 100 years.
      For example the nonsense about increased flooding in Brisbane due to Climate Change?
      http://www.bom.gov.au/qld/flood/fld_history/brisbane_history.shtml
      My grandfather told me about the 1893 floods, there were three floods in three months. (all greater than 1974 or 2011)He was washed away in a ferry in one of them.

  • Dimitar Mirchev

    As far as I know the SunShot program aims at reducing the installation cost of roof PV to $1/Wp. But roof PV competes with the cost of electricity for consumers – “socket parity”.

    Even now you can get around $1/Wp installation cost for big PV projects. The several subsidy-free PV projects in Spain that will be starting this year get below 1 euro/Wp installation cost.

  • Richard Koser

    Great article Giles, and a fantastic summary from Chu. I will take your advice and read Chu’s letter. Shame he isn’t staying on. Did you post a link to the letter? I can’t spot it on the phone screen.