Solar Energy Costs and Impacts
By James D. Agresti
November 24, 2014
In articles and columns touting the virtues of solar energy, a chorus of reporters and pundits are claiming that solar panels produce electricity for about the same cost as fossil fuels. These individuals are also declaring that because of this, solar energy will soon provide a major portion of the world’s electricity.
However, official government data from the U.S., Germany, and the International Energy Agency show that solar energy is far more costly than fossil fuels. Furthermore, even if governments continue to mandate and subsidize solar while penalizing competing technologies, solar is on track to supply only 1.2% of the world’s electricity by 2040.
This has important implications for the vast majority of people in the world, because energy costs critically affect standards of living, particularly for the poor and middle class.
Benefits and Costs
The primary benefit of solar and other renewable energy sources is that they emit a fraction of the pollutants and greenhouse gases of fossil fuels. Hence, for decades governments have been enacting regulations and taxes that charge consumers for the environmental impacts of energy sources. As explained in a 1992 report by the U.S. Energy Information Administration (EIA):
The effort to deal with environmental concerns has become a central feature of Federal energy policy. Substantial costs which were formerly outside the market mechanism have, through the implementation of a series of taxes and regulations, been internalized to energy markets.
Nonetheless, it is often impossible to assign objective dollar figures to these environmental impacts, and thus, some argue that fossil fuels are overtaxed and overregulated, while others say just the opposite.
For instance, when the New York Times conducted an analysis of corporate taxes and found that large oil companies pay an average effective corporate income tax rate of 37% as compared to 29% for other large corporations, the Times added “some economists argue that the high rates do not cover the pollution costs imposed on society.”
Beyond corporate income taxes, governments also impose excise, sales and other taxes specifically targeted at fossil fuels in order to restrict their production and consumption.
More significantly, the costs imposed on fossil fuels by energy regulations far exceed the costs of taxes levied upon them. Even before the regulatory growth of the past two decades, EIA reported, “There are so many Government regulations concerning energy that it is difficult to identify and analyze all of them.”
Despite all this, fossil fuels are still generally less expensive than green alternatives like solar, wind, and biodiesel. In fact, EIA has projected that by 2018, newly built commercial solar capacity will still be more than twice the cost of new natural gas capacity. Furthermore, as detailed below, these projections are based on assumptions that make the cost of solar seem much lower than reality.
Until recently, renewable energy advocates candidly admitted that “going green” will require economic sacrifices. For example, a 2011 report of the United Nations Framework Convention on Climate Change stated that the costs of cutting greenhouse gases “can carry an economic sting,” and “people are going to have to make difficult choices and take painful steps” to stem global warming. Likewise, in 2008, Barack Obama stated this under his plan to address climate change, “electricity rates would necessarily skyrocket.”
However, polls have shown that even though the vast majority of Americans favor green energy, most are not willing to pay a premium for it. For example, only 7% of utility customers are willing to pay an extra 20% for energy from renewable sources. This leaves green energy proponents in a tough position, because the energy sources they are promoting are at least 20% more expensive than their fossil fuel equivalents—and sometimes much more. Faced with these circumstances, many environmentalists and green energy investors have resorted to misrepresenting the costs of these energy sources.
How Much Does Solar Cost?
According to Los Angeles-based green energy supporter Robert Hunziker, the cost of solar-generated electricity is now “on a Levelised Cost of Energy (LCOE) competitive basis with conventional energy.” Likewise, Vivek Wadhwa, the director of research at the Center for Entrepreneurship and Research Commercialization at Duke, declares that “by 2020, solar energy will be price-competitive with energy generated from fossil fuels on an unsubsidized basis in most parts of the world.”
Contrasting those unsupported assertions with actual data from EIA, the levelized cost of newly built commercial-scale solar energy will be $144 per megawatthour by 2018. This is 2.2 times more than the $66 cost of electricity from new natural gas capacity, and 44% more than the $100 cost of new coal capacity.
Moreover, rooftop solar systems, which comprise most of the solar capacity in the U.S., are more costly than utility-scale solar systems. To quote the National Renewable Energy Laboratory, “rooftop PV [photovoltaic solar] is expensive compared to large-scale, ground-mounted systems.” This is mostly because larger systems benefit from economies of scale.
Furthermore, when calculating levelized costs, EIA uses certain assumptions that have the effect of skewing the results in favor of solar. For example, EIA’s cost figures:
- are computed by assuming that all types of generation capacity have a 30-year financial life. However, solar panels have an expected life of 20-30 years, while nuclear, coal, hydropower, and natural gas power plants commonly last for 60 years or more.
- do not account for the fact that electricity generated by wind and solar is generally less valuable than electricity from fossil fuels. This is because wind turbines only spin when the wind is blowing, and solar panels only produce when the sun is shining. Such discontinuous sources of capacity must be backed up by technologies that can produce a steady stream of power, like fossil fuels and nuclear. These added expenses are not reflected in EIA’s levelized costs.
In sum, even under these solar-friendly estimates and numerous regulations and taxes imposed upon fossil fuels, the costs of utility-scale solar are far higher than that of natural gas and coal. The situation is even worse for rooftop solar, the most common source of solar.
Such hard realities are precisely why Google has abandoned its Renewable Energy Cheaper than Coal (RE<C) project, which was launched “to develop renewable energy sources that would generate electricity more cheaply than coal-fired power plants do.” In a recent article by two Google engineers who worked on this initiative, they write that RE<C was “Google’s boldest energy move,” and the company committed “significant resources” to launching it in 2007, but:
By 2011, however, it was clear that RE<C would not be able to deliver a technology that could compete economically with coal, and Google officially ended the initiative and shut down the related internal R&D projects.
The engineers also tacitly confess to being hoodwinked by the type of rhetoric debunked above:
At the start of RE<C, we had shared the attitude of many stalwart environmentalists: We felt that with steady improvements to today’s renewable energy technologies, our society could stave off catastrophic climate change. We now know that to be a false hope—but that doesn’t mean the planet is doomed.
The engineers still believe that global warming may “take a terrible toll on civilization” but have concluded that “trying to combat climate change exclusively with today’s renewable energy technologies simply won’t work.” In other words, wind and solar are hopelessly inadequate for this goal. Thus, Google is redirecting its efforts to developing a game-changing technology like nuclear fusion.
But What About Germany?
Green energy supporters often point to Germany as proof that solar can economically generate large amounts of electricity. For example, Amit Ronen, director of George Washington University’s Solar Institute, affirms, “The German experience shows that with motivated leaders and the right policies, even a country with relatively poor solar resources and a large industrial base can reliably and affordably integrate high levels of solar energy into their electricity mix.”
Likewise, the Richard Dawkins Foundation has published a headline declaring that “Germany Now Produces Half Of Its Energy Using Solar” (Hat tip: Robert Wilson). Beneath this headline is a meme that says “I F#I&ING LOVE Science,” and beneath that is the disclosure that Germany does not produce half of its energy from solar. Instead, Germany did this on a certain day at a certain time when the country’s electricity needs were low because of a public holiday.
In reality, only 4.5% of Germany’s electricity came from solar in 2013. This single-digit contribution along with another 7.9% from wind has come at an enormous cost. In the words of a 2014 New York Times article on Germany’s clean-energy programs, the nation’s consumer energy prices “have nearly doubled in the past decade, including taxes and subsidies for clean energy projects that now account for roughly half of households’ energy bills.”
More specifically, data from the International Energy Agency shows that the average consumer cost for a megawatthour of electricity in Germany during 2011 was $351.955 or three times the U.S. cost of $117.837. Unsurprisingly, the same Times article reports “there is growing concern among leaders in Berlin that they may be stretching the limits of what citizens are willing to bear.”
The Human Toll
In October 2014, Bloomberg News published an article claiming that “solar will be the world’s biggest single source of electricity by 2050, according to a recent estimate by the International Energy Agency.”
In truth, IEA said no such thing. Instead, the IEA Secretariat estimated that solar could be world’s biggest source of electricity if governments subsidized and mandated it more aggressively. IEA’s press release stresses that this estimate does “not represent a forecast.”
An actual government forecast for solar energy is presented in EIA’s latest International Energy Outlook. According to this, under current laws and regulations, solar will supply only 1.2% of the world’s electricity in 2040, as compared to 36% for coal, 24% for natural gas, 16% for hydroelectric, and 14% for nuclear.
Those figures are based on the assumption that governments will keep propping up solar and holding back fossil fuels. These actions are not without costs, because every extra dollar that is used to build a solar panel rather than a more cost-effective option is a dollar that cannot be used for food, shelter, clothing, healthcare, or any other purpose.
That may not have much of an impact on those who have money to spare, but the global median household wealth is only $3,650, and 1.2 billion people live on less than $1.25/day. For these individuals, affordable energy can mean the difference between prosperity and poverty, or life and death. As explained in the textbook Introduction to Air Pollution Science, “The availability of affordable electric power is essential for public health and economic prosperity.”
The economics of energy greatly affect almost every material element of modern human life, from the costs of food and internet access to wage levels and unemployment. Hence, it behooves every thinking person to critically weigh the pros and cons of different energy technologies and the government policies that affect them.
All too often, journalists, pundits, and educators emphasize the environmental benefits of renewable energy while ignoring or distorting the downsides of these technologies. That may enrich green energy investors and gratify the feelings of environmentalists, but it is a disservice to the vast majority of people whose lives are directly impacted by the real-world consequences of these matters.
I believe that the price of solar energy is declining exponentially because the technology to produce more at a lower price is expanding exponentially. The only thing that is keeping our planet from having sufficient solar energy for all of its needs is that we have yet to develop the technology to store and distribute it efficiently. That capability is already in development, as is the ability to transmit energy wirelessly; and I’ll bet it will be here before 2025. I would refer you to Peter Diamandis’s and Steve Kotler’s book, Abundance, which details these developments.
Ellis, Thank you for your comment. As the article illustrates, exaggerated claims about solar energy are common, but hard facts from primary sources tell quite a different story.
The claim that the price of solar energy is declining exponentially is a myth among green energy advocates. Yes, the price of photovoltaic cells has dropped steeply, but these cells will not produce usable electricity until they are mounted in panels and installed. From 1998-2011, the average reported installed price for residential and commercial PV systems declined by about 5-7% per year. This is solid progress, but it is hardly exponential. http://www.justfacts.com/energy.asp#solar
Interesting article that covers many disparate topics and a little uneven in the coverage. Too many to unwind, so it will just mention two relevant distinctions.
There are different energy markets with different constraints and opportunities. Individual/business consumers price threshold is the retail price of energy. If a tech is less expensive than the electric companies rates, it will be desirable even if it requires an investment with a return over many years. Power generation companies have to consider wholesale cost for their calculations and this will give them different options and paybacks.
No tech runs 100% of the time and thus all tech requires some ‘backup’. The advantage with solar is that it peaks when usage peaks and can be a cheaper option then the usually expensive peak power techs versus base power. Power generation uses a mix of sources each with different pluses instead of say only nuclear for a lower total price of energy to the customer. The rise of large scale solar and wind doesn’t change this mix and lowers cost.
Paul, Those claims are not in keeping with reality.
Rooftop solar is the only pv solar option available for individuals and businesses, and it is far more expensive than buying retail electricity from power companies. It has become more common merely because national, state, and local governments have mandated and subsided it so heavily: http://www.justfacts.com/energy.asp#solar http://www.justfacts.com/energy.asp#subsidies
The leading technology for delivering peak power is natural gas, and as the article documents, solar is not a “cheaper option” than this: http://www.justfacts.com/energy.asp#gas-electricity
The fact that “no tech runs 100% of the time” does not mean that “all tech requires some backup.” Technologies like coal, nuclear, and natural gas don’t run all the time simply because they do not need to. These sources are profoundly more independent and reliable than wind and solar, because they can be dispatched on demand. Per EIA:
“The duty cycle for intermittent renewable resources, wind and solar, is not operator controlled, but dependent on the weather or solar cycle (that is, sunrise/sunset) and so will not necessarily correspond to operator dispatched duty cycles.”
Likewise, per the Institute for Plasma Physics in the Netherlands: “Wind and solar energy are so-called intermittent sources of energy, meaning that they do not deliver energy all the time. This means that you need back-up power, or a means of storing power for times when there is no sun or wind, which adds to the costs of these energy sources.”
Many things are subsidized, like hybrid vehicles, or a few years back Hummers, tax savings offset high operating costs. Our free market hasn’t been free for a long time. Anyway, those subsidies matter as they figure into whether a consumer makes the purchase, with rebate, or buys something else. This also applies to larger entities, where communities via for ‘jobs’ by paying serious $ in many forms. Subsidies good or bad alter the market and hence makes solar affordable in this case. To say it’s unfair is fine, to say it’s more expensive is disingenuous.
Agree that large scale solar is not the energy industries darling. Currently retiring coal is being replaced with new gas and wind. Everything else is a distant third, but still billions of $ in investment. Noticed you don’t mention much about wind even though it’s impact globally has been significant in the last years.
According to your logic, filet mignon would be “less expensive” than hamburger meat if government paid for 70% of the costs of filet mignon. That is precisely the case with solar, where government regularly subsidizes 70% and sometimes up to 100% of the costs: http://www.nytimes.com/2011/11/12/business/energy-environment/a-cornucopia-of-help-for-renewable-energy.html
The price is the price. If subsidies or taxes change and the purchasers price changes. Lots of things factor into bringing a product to your doorstep. You can worry about them until the cows come home but it’s not changing the price. In your article you could not quantify the health costs for industries fuel choices and fell back on the price.
Consumers can only go on information they have. A better tact would be to quantify ‘subsidy’ and it’s benefit or harm and make an argument that it should be changed to x. But changing ‘subsidies’ is really a different topic.
You are entirely missing the point. Costs are costs, and regardless of whether consumers or taxpayers pay for these costs, the impact is the same: “every extra dollar that is used to build a solar panel rather than a more cost-effective option is a dollar that cannot be used for food, shelter, clothing, healthcare, or any other purpose.”
“The advantage with solar is that it peaks when usage peaks…”
Actually, solar peaks midday for a couple of hours just before most cities have their actual mid-to-late afternoon peak. So baseload sources must ramp up in the morning, ease off at noon (sometimes by 60%!), and then ramp up harder in the afternoon to cover the actual peak use. I would compare that to a truck driver that has to stay within 10 feet of an elderly driver – lots of sudden braking and hard accelerations just to tail-gate (load-follow) means that the truck driver (baseload sources) tend to be inefficient with their fuel. I have read some opinions that feel overall efficiency and GHG emissions would be improved by getting rid of Renewables from the grid, though I wouldn’t go that far myself.
In fact, if all those static solar panels could be tilted a bit to the west (meaning the owners would get ~20% less $$) then the afternoon peak would be well served by solar energy. As it is, they’re as much a nuisance as a benefit.
The EIA’s projections are so absurd a group of readers at CleanTechnica wrote a letter to DOE secretary Moniz in protest:
I read the letter, and it is typical of the misinformation that pervades green energy rhetoric.
The basic argument of the authors is that green energy has recently grown at a rapid rate (relative to the past), and EIA projections don’t show this trend continuing into the future.
What they neglect to mention is that the recent growth has been primarily driven by government mandates that literally force people to use wind, solar, and biofuels like ethanol. EIA’s projections reflect the fact that once we reach the levels specified by these mandates, green energy growth will slow drastically.
For example, federal laws passed in 2005 and 2007 mandate that increasing volumes of biofuels be used in the U.S. transportation sector through 2022. Due primarily to these laws, the portion of automotive fuel that is comprised of ethanol rose from 2.9% in 2005 to 9.7% in 2012. http://www.justfacts.com/energy.asp#biomass-biofuels
Roughly 30 states have enacted similar mandates for wind and/or solar. These state mandates in combination with temporary increases in federal subsidies for wind and solar have created a situation where utilities have rushed to build wind and solar. This is because they must build it by law, and hence, it makes sense for them to do so while federal taxpayers are picking up an added portion of the expenses.
This is why renewable energy growth will soon slow dramatically unless governments keep forcing people to use even greater amounts of it. By the way, we can see the economic results of such policies in Germany.
Incidentally, even with all of these mandates and subsidies, solar supplied only 0.2% of all U.S. electricity in 2013: http://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3
In sum, the problem is not with EIA’s projections but with green energy proponents either misunderstanding or misrepresenting the facts of this matter.
Thanks for mentioning that federal subsidies for wind and solar are temporary, for therein lies the cause of the projected hiatus in renewable construction.
The EIA’s projections are skewed by assuming breaks baked into the tax code for incumbents remain, but that the breaks for renewables are reduced or ended about a year from now.
These assumptions underlie the projections that “PV Solar installations stop in 2016 and do not resume for 12 years and even then at a rate significantly below current rates.” Even so, this flies in the face of developments such as streamlined installations reducing costs of a typical residential solar installation from $22K to $7.5K :
Further, according to the EIA “Construction of wind farms ceases in 2016 and does not resume for almost 20 years.”
The only way that’s going to happen is if incumbents continue to reap the benefits of the subsidies they’ve entrenched for decades while support for renewables is slashed:
In cumulative dollar amounts, over the lifetimes of their respective subsidies, the oil, coal, gas and nuclear industries have received approximately $630 billion in U.S. government subsidies, while wind, solar, biofuels and other renewable sectors have received a total of roughly $50 billion in government investments. (DBL Investors, http://bit.ly/uV14lf)
Wrong on all accounts.
Subsides for fossil fuels are so tiny that they have no impact on their competiveness with renewables. For example, total federal subsidies for gasoline amount to a single penny per gallon. For contrast, just the excise taxes on gasoline average 39 cents per gallon:
I did not write that “federal subsidies for wind and solar are temporary.” I wrote that certain “increases in federal subsidies for wind and solar” are temporary. Big difference. For instance, federal laws dating back to 1978 have provided a 10% tax preference for solar. A 2005 law increased this to 30% until 2016, and after that, the subsidy reverts to 10%. Beyond this, wind and solar receive numerous other federal subsidies: http://www.justfacts.com/energy.asp#subsidies
Again, governments regularly subsidize 70% and sometimes up to 100% of the costs of solar: http://www.nytimes.com/2011/11/12/business/energy-environment/a-cornucopia-of-help-for-renewable-energy.html
The claim that subsidies for fossil fuels ever have or ever will give them a competitive advantage over renewables is nonsense. Just the opposite is true. Green energy advocates habitually cite the DBL Investors report, but they often neglect to mention that this report is from a green energy investment firm with a financial stake in receiving more subsidies. I don’t have time to delve into this here, but I’ve dissected the report, and it repeatedly uses deceitful methodologies. For an honest accounting of energy subsidies, see: http://www.justfacts.com/energy.asp#subsidies
As documented above, green energy has recently grown at a rapid rate mostly because governments have forced people to use it. If governments don’t mandate even more of it, this growth will stop. This is demonstrated by EIA projections in both the U.S. and globally. The reduction of a few (among many) U.S. subsidies is insignificant in the grand scheme of things.
I followed the subsidies link but did not find a dissection of DBL’s work. I did find a graph showing that prior to 1978 renewables got no susbsidies at all. Of course, coal, oil, and gas have received subsidies for a century or more, which goes to the point that the incumbent fossils have received much more than renewables in total. Seems only fair to let them catch up, especially since they’re carbon neutral sources.
Today’s NYTimes has an article claiming that in 3 to 5 years solar will be cheaper than coal, so I hardly think the expansion will be stopped dead in it’s tracks by the possible reduction of subsidies, and it would be counterproductive to slow their progress that way.
Wind is in an even better position, recently a 20 year PPA was signed at 2.5 cents/kWh, and since the 2.3 cents/kWh PTC runs for 10 years, the unsubsidized cost comes to 3.65 cents kWh, with few GHG emissions.
Perhaps IEA will illuminate the subsidies issue:
“The IEA’s latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $548 billion in 2013, $25 billion down on the previous year, in part due to the drop in international energy prices, with subsidies to oil products representing over half of the total. Those subsidies were over four-times the value of subsidies to renewable energy and more than four times the amount invested globally in improving energy efficiency.”
Further, this is just one year’s comparison – the running totals over the last century surely represent a much higher ratio.
Of course, the great unmentioned subsidy is the right to emit CO2 into our atmosphere. You might say that doesn’t matter, but the recent unprecedented agreement between the US and China to reduce emissions from the world’s two top emitters is considered by most a landmark achievement in the fight to stop climate change.
You keep piling one untruth on top of another, and I’m not going to chase you any further down this rabbit hole. All of the assertions you made have already been debunked above, including in the original article.
So you find a direct quote from the IEA unconvincing, so be it.
As fate would have it, a world record *UNSUBSIDIZED* price for solar was recently announced, with powerful implications for Saudi Arabia:
“On November 20, 2014, ten bids for the 100 MW PV IPP tender issued by Dubai’s state utility DEWA were opened. The results provoked awe throughout the Gulf region’s power community and will set the standards for future tenders. Saudi Arabia’s Acwa Power bid an unprecedented 5.98 USD cents/kWh, with a consortium of Spain’s Fotowatio Renewables and Saudi Arabia’s ALJ Energy coming a close second with 6.13 cents/kWh. The low tariffs, bid in a fully commercial, unsubsidized setting, disprove persisting misconceptions in the region about the allegedly high cost of PV and should provide a boost to other governmental procurement programs in the Gulf, in particular, in Saudi Arabia.”
“While very aggressive, the bids are realistic and forcefully demonstrate the continuing and tremendous pace of technical, commercial and financial innovation in the PV industry. The low price level will create additional incentives for governments in the Gulf region to drive their renewable-energy programs forward, and combined with the solid nature of the bids provides a clear answer to naysayers who until this day have doubted the viability of solar energy in the region.”
“The times of high FITs or lenient legacy PPA rates are definitely over in the solar project landscape, as evidenced by the results in the DEWA tender, but also recent results in India, Brazil and South Africa.”
“In summary, the DEWA project results can be expected to have a lighthouse effect for the development of renewable-energy projects in the Gulf region, demonstrating that the cost-effectiveness and scalability in particular of solar PV technology has still been widely underestimated. We expect the momentum for renewable energy in the region to pick up significantly after this long-awaited and necessary milestone.
Most importantly, all eyes now rest on Saudi Arabia.”
– See more at: http://www.apricum-group.com/dubais-dewa-procures-worlds-cheapest-solar-energy-ever-riyadh-start-photocopiers/#sthash.zJ2DmiWl.dpuf
I would like to see a comparison of the costs for building a new 100 – 500 MW power plant, compared to building a new 100 – 500 MW solar plant. Then see an operating cost breakdown. And then see an environmental impact cost comparison of the costs of undoing the damage done by fossil fuel plants VS solar. Then we might be comparing apples to apples.
This was a good article on the truer costs of solar energy and its costs. But there are many types of renewable energy, although they don’t satisfy all purists. One northern US City now runs on 100% renewable energy: Wind, water and biomass. There are many more types. http://cleantechnica.com/2014/09/23/100-renewable-energy-burlington-vt/