Figure A. source Economist Sun, wind and drain: Wind and solar power are even more expensive than is commonly thought
Figure B. source Charles Frank The Net Benefits of Low and No-Carbon Electricity Technologies
Figure A and B summarize some of the conclusions of the recent paper by economist and Brookings senior fellow Charles Frank. The paper might not have attracted much attention outside the usually wonkish energy policy circles. But The Economist wrote a full page review which quickly became a lightning-rod for much shouting by pro-renewables activists. There are three levels for you to study the results — in increasing order of difficulty:
- Economist: Sun, wind and drain: Wind and solar power are even more expensive than is commonly thought
- Brookings blog post by Charles Frank: Why the Best Path to a Low-Carbon Future is Not Wind or Solar Power
- Brookings paper by Charles Frank: The Net Benefits of Low and No-Carbon Electricity Technologies [PDF]
The Economist article will not be a favorite with Angela Merkel, as is nicely summarized in the last paragraph:
The implication of Mr Frank’s research is clear: governments should target emissions reductions from any source rather than focus on boosting certain kinds of renewable energy
I’ve read all 182 tedious comments, which I cannot recommend because the majority are non-referenced complaints from boosters. Approximately none of the Economist commenters had read the Frank paper. So my take is you can skip #1, read #2 for a good introduction, then work your way through #3.
Figure A is a nice graphic produced from Figure B which is the “money table” of the Frank paper. I’ve included Figure B so you can quickly grasp what the Cost vs Benefit bars mean in the graphic. There’s a minor error in the graphic: the Wind cost/benefit bar is missing the mark for “net benefit” which is a negative $25k/MW not zero.
What Figure A and B claim to tell us is that in the USA new combined-cycle gas plants offer the greatest net benefit given a large set of assumptions. Dr. Frank’s paper is a model of transparency — every assumption and parameter is referenced and further qualified by end-notes. Even though this is a simplified methodology for estimating net benefits, there are still a heap of assumptions that must be understood in order to assess where the results might be applicable. I’ll summarize a few that I think are critical:
- Net benefits are calculated on the assumption that new generation replaces on average 22 hours/day of coal non-peak generation and 2 hours/day of single-cycle gas peak generation
- This is USA-centric, based upon EIA 2013 data
- Therefore relatively very low methane (gas) prices
- Therefore relatively high insolation, moderately high wind resource
For energy policy wonks I will highlight a few weak spots in the paper:
- Most important is that Frank’s Adjusted Capacity Cost does not fully reflect the negative reliability impact of VRE.
- I will speculate that Dr. Frank chose to avoid the complexity of Capacity Credit to keep the presentation accessible. (Capacity Credit estimates the amount of firm, dispatchable generation that can be replaced by VRE without reducing reliability.)
- Dr. Frank does not examine how Net Benefits vary with VRE penetration. Detailed modeling shows that increasing VRE has large effects on reliability.
- Capacity Credit for VRE generation is inversely proportional to penetration. The more wind/solar you build the less marginal value you get.
- The Frank paper is directed at a future powered by less coal (that’s good) but not a zero-carbon future (which we must achieve).
- If we build a strategy for the goal of Zero Emissions we will still likely build Gas CC in quantity because it is fast to build, relatively cheap and politically acceptable. But looking out a century to achieving Zero will help us focus on ramping up nuclear as fast as feasible and safe. We cannot wait 50 years to get started.
Why do I think the Frank paper is important? This is a serious effort to help policy-makers understand why subsidies supporting wind and solar are such an expensive and inefficient way to reduce carbon emissions. And Dr. Frank illustrates why traditional LCOE analysis overvalues wind and solar. And yes, the headline results are US-centric, but there is a serious effort to support generalizing the results by:
Sensitivity to Carbon Prices: In Tables 9A and 9B, the net benefits for both wind and solar are negative. However, if the carbon price is increased from $50 to $61.87 or above, then the net benefits of wind are positive (as shown in Table 11). Above $185.84, the net benefits of solar are also positive.
My interpretation of that result is that solar costs at least $185/ton CO2 avoided. For a society with finite resources, the cost/ton of CO2 abatement is a rather important number.
Sensitivity to Natural Gas Prices: The results in Tables 9A and 9B are highly sensitive to historically volatile natural gas prices. In the United States, the average annual cost of natural gas to electricity producers reached a high of $9.01 per million Btu in 2008. The average monthly cost reached a low of $2.68 in April 2012 (EIA, November 2013, Table 9.10.). The variation among countries, and the effect on net benefits, is illustrated in Table 12.
Note that nuclear becomes the highest net-benefit policy when gas prices exceed about $9/MBtu. Current UK prices are above that level, which is where US prices were only six years ago.
My bottom line is: this paper is good starting point. Please keep in mind that the true cost of variability for wind and solar is significantly understated, as the value of VRE falls as penetration increases. Still, I appreciate that adding complete VRE analysis would have made this paper much more cumbersome.
Fortunately, there has been some very good work on VRE and System LCOE in the past couple of years. In a future post I will get into the research of Lion Hirth et al and the Potsdam Institute for Climate Impact Research. For the eager here are three good references for in-depth modeling studies of high penetration VRE:
- Hirth, Lion, The Optimal Share of Variable Renewables. How the Variability of Wind and Solar Power Affects Their Welfare-Optimal Deployment (November 8, 2013). FEEM Working Paper No. 90.2013. Available at SSRN: http://ssrn.com/abstract=2351754 or http://dx.doi.org/10.2139/ssrn.2351754
- Ueckerdt, Falko and Hirth, Lion and Luderer, Gunnar and Edenhofer, Ottmar, System LCOE: What are the Costs of Variable Renewables? (January 14, 2013). Available at SSRN: http://ssrn.com/abstract=2200572 or http://dx.doi.org/10.2139/ssrn.2200572
- Hirth, Lion and Ueckerdt, Falko and Edenhofer, Ottmar, Why Wind is Not Coal: On the Economics of Electricity (April 24, 2014). FEEM Working Paper No. 39.2014. Available at SSRN: http://ssrn.com/abstract=2428788 or http://dx.doi.org/10.2139/ssrn.2428788