09 February 2023 |

Cost complexity


One of the more common headlines in climate tech circles concerns the relative cost of energy sourced from renewable like solar and wind vs. fossil fuels. Often drawing on academic studies, they tend to say the same type of thing. 

“Solar and wind energy are now definitively cheaper than burning coal in almost all cases!”

I made that one up, but it approximates something that was published recently. We’ve seen this messaging grow more common in recent years. At some level, it’s true; solar and wind have come down the cost curve dramatically in recent decades and do offer many megawatt hours of inexpensive power. 

Still, if I put myself in the shoes of the curious observer, I’d ask myself two more questions:

  1. If solar and wind are so cheap, why isn’t the world decarbonizing more quickly?
  2. If solar and wind are so cheap, why are electricity prices so high?

These are two meaty questions with complex answers that are also entangled with one another. I could write both off, blaming the fossil fuel lobby, electric utilities, or other vested interests for slowing renewable energy deployment and for consequently keeping cost savings from consumers.

Things aren’t that simple, however. Let’s explore some of the complexity today.

Embracing complexity

There was, in fact, a new study that came out recently to much media fanfare that prompted this line of investigation. It examined the relative cost of new utility-scale solar and wind compared to the costs of operating existing coal power plants in the U.S. at more than 200 locations.

It found that new utility-scale solar and wind projects would be cheaper than operating the coal power plants for all but a few locations. That’s good news! 

Based on that conclusion, you’d probably hope developers are moving at breakneck speeds to break ground on new clean energy projects in all those locations. And sure, there’s a decent amount of renewable energy underway in the U.S. post-IRA. But there’s not that much. A report from S&P recently outlined a rather stark outlook for wind energy in the U.S. in 2023:

Annual wind capacity additions have begun to slow down after record additions of more than 14 GW in both 2020 and 2021. Wind additions in 2023 are expected to fall to less than half of that, with 6 GW planned… (more here)

What gives? Things must not be as simple as the study’s conclusions sound. 

There are many components of complexity here. One we’ve discussed before is how long permitting, developing new projects, and interconnection to the grid can take. Another is very real, well-organized, grassroots political opposition to building new renewable energy projects in the U.S., especially in the heartland.

Wind turbines near White Deer, Texas (photo via Shutterstock)

The studies on cost themselves also oversimplify things. Here’s one example. 

The study I mentioned earlier analyzed four scenarios to compare with each existing coal-power plant location. Only one of those considered the cost of adding energy storage to the new renewable energy generation. Specifically, the study only went so far as to “analyze the economics of adding 4 hours of battery storage capacity to solar resources.” 

The benefit of a coal-fired power plant is that it can operate 24/7 and is highly dispatchable; it runs when you want it to and can fire up in ~5 minutes. For solar and wind energy to do the same, they’d need to pair with a significant amount of energy storage capacity. 

The study addressed this nuance to an extent, noting that cost savings from switching from coal to renewables could fund battery energy storage sufficient to replace some of the capacity of the coal power plants that would be sunset.

Some is not equal to all, however. Further, the battery energy storage systems the study evaluated were 4-hour batteries. Those systems can only discharge at maximum capacity for… 4 hours. On cold winter nights, that’s a lot less than you’d need. Even 8-hour battery energy storage systems cropping up slowly nationwide won’t always be enough.

Nor has any state in the U.S. built enough energy storage capacity to service even existing renewable energy capacity. California is a leader in battery energy storage but still only has ~3+ GWs to pair with 30+ GWs of installed renewable energy capacity. Bit of a mismatch! 

To this end, many firms are working on innovative energy storage solutions, ranging from vanadium ‘flow’ batteries to iron-air chemistries and compressed air. But we’re years from these getting deployed in the field and at scale. 

Other considerations

Energy storage isn’t the only way to achieve greater grid decarbonization with renewables. 

Sticking with the example of my home state, you could supplement California’s strong solar energy generation with, say, the massive wind energy available in Wyoming at night. That’d be a match made in heaven; ample solar during the day and wind at night piped in via high-voltage transmission lines. 

Still, building those transmission lines, while a priority, is perhaps an even more herculean task than building energy storage. In 2009, plans for what would have been the world’s largest wind farm fell through in West Texas when T. Boone Pickens (of oil fame) called the project off, citing an inability to align all stakeholders on the necessary transmission build-out. Since then, the U.S. has yet to build any high-voltage transmission anywhere else, either

And there are other reasons why many of these cost comparisons aren’t all that useful, or at least beg for more nuance.

Perhaps the biggest question mark is whether any two megawatt hours are interchangeable to begin with. Wind and solar power plants are the cheapest to build, certainly much cheaper than a nuclear power plant or drilling deep into the ground to tap geothermal energy. It makes sense that project developers want to develop renewables; they’re the path of least resistance to profit, especially with the tax credits available to developers in the U.S. 

Is that what markets should incentivize though? Perhaps there should be a greater, or at least equal, incentive for developers interested in building clean generation that’s also firm (i.e., dispatchable rather than variable) or scaling technology that helps make renewables themselves more firm (e.g. storage).

There are incentives in the IRA for new energy storage in the U.S.. The IRA has credits for nuclear and geothermal, too — TBD if those are enough to entice significant new development. Plus, there are probably other opportunities I’m not thinking of that were left out of the IRA, too.

The net-net

Please don’t interpret any of this as anti-renewable advocacy. I’d love to see every coal-fired-power U.S. plant closed this decade. I’d love to see it replaced with solar and wind power, in large-part.

But two things can be true at once: Wind and solar are great fuel-saving technologies. Paired with energy storage, they can offer firm power, too. And, they’re not a panacea for deep grid decarbonization. Not yet, at least.

Championing the umpteenth academic study that tells us renewable energy is cheaper than alternatives without addressing complexities around grid balancing and the state of energy storage technology doesn’t help “the cause” as much as some folks think.

There’s a time to communicate things very simply. But when it obfuscates the complexity of the energy transition, that ain’t it.