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U.S. wind, solar prices on downward slope, even without tax credits

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IEEFA

Wind and solar power purchase agreement (PPA) prices have declined dramatically in recent years, establishing a trend that continues.

The levelized prices for power from utility-scale solar projects (5 MW and larger) declined by 73 percent from a capacity-weighted average of $154.20 levelized (in real $2015 dollars) in 2009 to an average of $41.10 per MWh levelized in 2015. Recent solar PPAs in California, the Southwest and Texas are priced as aggressively as $35/MWh levelized, or lower.

At the same time, wind power PPAs have declined by more than 45 percent since 2009, from an average of $69.06 per MWh levelized (in real 2015 dollars) in 2009 to an average of $37 per MWh levelized in 2015.

Recent PPAs in the interior U.S. have been cheaper still, within a range of $20.68 to $26.43 per MWh levelized (in real 2015 dollars).

These steep declines in have been driven by sharp drops in installation costs and improvements in operating efficiencies and performance. All of these PPA prices also have benefitted from subsidies in the form of the wind production tax credit (PTC) and the solar investment tax credit (ITC).

However, it is becoming widely acknowledged that wind and solar will remain highly competitive even when these subsidies are gone.

NextEraEnergy (NEE), one of the largest generators of solar energy in the U.S., has said that due to continuing declines in costs, wind power PPA’s will be in the range of $20 to $30 per MWh levelized, even without any subsidies.

NEE also projects that after 2020 new solar PPA prices will remain in the range of $30 to $40 per MWh levelized, again without any subsidies.

Further, UBS analyst Julien Dumoulin-Smith agrees that these low unsubsidized prices for wind and solar are achievable by early 2020 due to continued pricing pressures driving down wind and solar installation costs. UBS says that the prices for solar panels are headed down towards $0.20 per Watt, “Just a matter of when this becomes widespread.”

Thus, by the early 2020s, unsubsidized wind and solar prices will be below the variable costs of operating coal and natural gas plants, just like subsidized prices are today.

David Schlissel is IEEFA’s director of resource planning analysis.   

  • Mike Dill

    The last sentence says it all: By the early 2020s, wind and solar prices will be
    below the variable costs of operating coal and natural gas plants.
    If this ends up being true, running a coal or gas plant when the sun is shining or the wind is blowing will be a money losing proposition. Storage will probably cut the legs out of the other times, leaving very little time for non-renewables to earn any profit.

    • Vox

      Yes and no. In the immediate sense, solar PV is producing the duck-graph, in which the demand in the middle of the day is thinned out to almost nothing. This sort of demand profile would mean that a coal plant would need to shut down during that time of day.

      On the other hand, storage will smooth out the peak of solar during the day, and the lack of it during the night, which then make coal viable again as it can produce continuously for a constant “demand” profile. But a lot of these plants may go under in the meantime.

      Gas is an entirely different beast. Because they can go from o to 100% in 5min, they are well suited to pair with intermittent Renewables, but actually less so in a constant “demand” profile which storage would give us.

      • Mike Dill

        I agree that natural gas is a good short term solution for covering the valleys created by intermittent renewable energy. Soon storage will be cheaper than natural gas as a dispatchable ‘generation’ source, which will make most of the natural gas plants obsolete. But that will take a few years. Planning for the major utilities must be troubling now, as putting in a new natural gas plant that might be a stranded asset in less than a decade would keep me up at night.

  • SapientHetero

    This story must be based on the assumption that US govt will continue Obama’s War on Affordable Energy by ramping up taxes on coal & natural gas. That, plus massive subsidies, are the only hope greenies have that wind & solar will cost less than coal & natural gas power generation by the early 2020s.