Renewable electricity’s affect on markets’ levelized costs of energy (LCOE)

CaliforniaGeo 6-20-18

Market reality is continuing to shred the policy defenses of certain industries and government officials as renewables continue to chew into domains previously considered sacrosanct.  In the chart above, an acronym titled LCOE (Levelized Cost of Energy) is used to compare solar photovoltaic generation with nuclear generation.

As explained by the U.S. Dept. of Energy, if a (hypothetical) energy generation system capable of producing 1,000 Kwh (one megawatt) cost $100 to build and finance, and had $25 in annual expenses, then its LCOE would be $125 ÷ 1,000 kwh, or 12.5¢ per Kwh.  Applied to the graphic above, you can see that (even without ignoring the time difference in construction) the LCOE trend lines are clear.  When the fuel is free, it makes a tremendous future difference when components become cheaper, and they last at least as long as a nuclear plant’s license.

Renewables are quick (and cheap) to build, and I would add, solar PV does not require the use of water for reactor cooling or steam loop condensing.  If we’re going to meet our energy future on the basis of cost, pollution, and safety risk, there is no need to consider central nuclear generation.  We can locate solar (and grid-scale battery storage) almost anywhere, including any voltage “problem areas” identified by the utilities themselves.  These installations are quiet and safe.

But, in the Spring of 2018, the Trump Administration began an attempt to walk away from market realities such as the one shown above.  In a tilt toward his campaign insistence that he would “bring back coal mining,” he now insists that electric customers pay a premium so that coal-fired generating plants can survive economically.  This effort is joined by utilities on the east coast so that their uneconomic assets do not become “stranded,” as the expression goes.  At least in the energy business, this is unheard of until now, and it flies in the face of “free market economics,” or put another way, “perpetuates the economically unprepared,” as in lousy planning by management.

It’s one thing to provide a taxpayer-wide, U.S. federal tax subsidy to an industry that needs encouragement.  It’s quite another for ratepayers to subsidize their utility’s bad bet on a technology whose life is nearly over.  Investor-owned utilities are regulated monopolies, and it would seem fairer to charge the losses by stranded assets to their shareholders instead of their ratepayers.

In California, the last nuclear utility (Pacific Gas & Electric) made the announcement in 2016 that its two-unit nuclear plant called Diablo Canyon would not pursue renewed licensing in ’24 and ’25, thus ending their useful life, but still costing millions in de-commissioning and waste storage costs.  They will be replaced by more solar and wind, grid-scale battery storage, load balancing, and strategic time-of-use rates.

Of course, our earth awaits the construction of smarter and more sustainable technologies, and they are already here in the form of geothermal heat pumps, whose energy is available all year long, night or day.  Although they don’t generate electricity, they displace its use, which means more of what we need can come from the earth’s thermal battery and not be from combusted or fissioned fuels that carry higher costs and risks.  That “battery” is available on all land, under water, and in a variety of other places like wastewater treatment plants.  We are not hot rocks or steam, but we are everywhere, under your feet.

—Bill Martin