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Wind and solar costs challenge fossil fuels in US

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The price of new power purchase agreements for wind farms and new solar projects in the US continue to defy all expectations, making some energy experts wonder why anyone would contemplate a new fossil-fuel plant.A new report by UBS analysts in the US has crossed our desk. It is basically a write-up from a webinar hosted by UBS and Declan Flanagan, head of local renewable energy group Lincoln Energy, but  it provides some fascinating insight of what is happening in that market.

The first notable conclusion is the declining cost of wind energy. Contracts in Texas, which accounts for around one quarter of all US installations, are regularly below $30/MWH, and some are at $25/MWh. Even with a tax incentive, this still put wind well below $50/MWh.

Why is this happening? New equipment is lifting capacity factors by 5 percentage points, and Texas’ excellent wind conditions mean that wind farms are getting capacity factors in the high 40s or low 50’s (per cent). Nearly half of this occurs during peak load, defying most characterizations of wind as essentially an off-peak power source.

What does this mean? Greentech Media recently quoted Stephen Byrd, Morgan Stanley’s Head of North American Equity Research for Power & Utilities and Clean Energy, speaking at the Columbia Energy Symposium in late November. “Compare that to the variable cost of a gas plant at $30 per megawatt-hour. The all-in cost to justify the construction of a new gas plant would be above $60 per megawatt-hour.” So who would build gas?

Not as many people. Citigroup recently reported that some peaking gas plants were already being replaced by solar PV plants.

Why is this so? The UBS research note says that in Colorado, local utility Xcl has just announced new contracts for solar PV plants below 6c/kWh ($60/MWh). This, UBS said, was the lowest reported solar pricing it had seen in the US, although it confirms a recent survey by the National renewable Energy Laboratory, which found pricing in that range and with no inflation kicker, meaning that the solar plants would be producting for an effective $40/MWh by the end of their contracts.

That would match even depreciated fossil fuel plants. The variable costs of gas fired plants are likely to be at least $30/MWh, and that does not include their capital costs.

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  • barrie harrop

    Exciting times.

  • sean

    how does this compare with say South Australia, or Tasmania?

    • suthnsun

      I think 45 for good sites WA, SA and TAS

      • sean

        wow! that high?

  • suthnsun

    I assume these capacity factors of around 50% are non-storage models? If so, the GE Brilliant turbines with integral storage are going to beat most other types of generation for capacity factor as well as LCOE.

  • Western Guy

    What % of total US load? Still seems a very small portion.

    • Bob_Wallace

      Wind is going to be close to 5% in 2013. 4.67% for the first six months.

      Solar is still well under 1%. Probably will be around 0.2% in 2013.

      Small, but if you look at installation rate graphs you will realize we have achieved liftoff.

      • Zach

        I believe those solar numbers only include utility scale solar, so the true value is close to twice that. Wind is coming in a little lower in the second half of the year (due to seasonal fluxuations in demand and very low wind in California). It might end up closer to 4% rather than 5%.

        • Bob_Wallace

          The EIA is now including end-user/rooftop solar in their numbers. I haven’t checked numbers for the last half of the year, so you may be right about wind dropping off.

  • http://khanneasunztu.wordpress.com/ KhanneaSuntzu

    Because old energy has established investment interests, bankers have a lot of money on this scam, and they are perfectly able to get some prostititians to push through pork legislation?

    Isn’t it obvious? The whale oil business had lobbyists for years after the last whale oil lamp was lit.

  • Green_Lightning

    SHEC Energy a Canadian CSP innovator claims about 3 cents per KW/hour for baseload solar when it’s complimentary set of technologies are scaled up.