Going Local Gives More Value to Solar Power

Date: 27 Nov 2012 | posted in: Energy, Energy Self Reliant States | 2 Facebooktwitterredditmail

Update: you can now read the whole essay – Wide-scale Implementation of Solar Power

I just read an essay by a Canadian utility executive arguing that solar is the most economic energy source, and he systematically dismantles the notion that “cheap baseload coal” is more competitive that solar electricity.

First: Solar is Cheaper Than Coal

He starts with a typical comparison: coal power is 5¢ per kWh and solar costs 19¢.  But, as the he notes, the value of a coal plant is really split into daytime (valuable) and night-time (nearly worthless).  A better comparison is the daytime value of each power source, which is closer to 8¢ and 19¢.

The there’s the well-known cost of long-distance transmission for centralized power plants, a 10-20% penalty to a coal plant.  So that power is 9¢ per kWh.

But the baseload power figure is still apples to oranges, because it doesn’t account for a “regulatory pact” giving most North American utilities long-term access to cheap capital via captive customers, franchises, pass-through costs to ratepayers, etc.  The pact resulted in a great deal of inexpensive energy to power the economy, but it’s hardly fair to compare electricity generated under that paradigm to a retail-priced solar array with installer and financier middlemen.

If solar got the same deal, he says, it would cost closer to 13¢, to 9¢ from daytime coal power.

Of course, there’s another issue to account for.  New coal is not built at 5¢ – that was a “blended cost” of coal-fired power that includes plants paid for 30 years ago.  Today’s coal plants are have an energy cost of 8-12¢ per kWh, and a daytime value of 14¢ (with a long-term trend of rising costs).  In contrast, the cost of installing solar is falling by 10% or more per year.

So the time-of-day value of solar, the avoided transmission costs, and the regulatory advantage of financing centralized coal plants combine, and solar at 13¢ is more competitive than coal at 14¢.

So a fair accounting of solar and coal shows solar has a lower cost at a time of day when we need energy.

Solar is More Valuable

Solar also has incredible value.   In a warming world, the marginal demand on the electricity system is air conditioning, with an incredibly strong correlation with zero variable cost solar output.  The utility executive estimates that the marginal cost to supply an additional kWh of air conditioning is 10-22¢ per kWh on the low end.  And that’s the true value of solar to the grid.

Which means the net cost of solar ranges from a measly 3¢ per kWh to a net benefit of 9¢ per kWh.

The Centralized Utility System Can’t Adjust

In a regulated market, the utility makes its dollar from a regulated return on investment in new hardware: poles, wires, and power plants.  In a deregulated market, the value of solar is split into different market participant silos (generation, transmission, distribution are all separate).   Neither paradigm comprehensively credits solar generation for its value offsetting transmission, daytime generation, and peak demand.

A Local Utility System Can

Going beyond the article, the theory of solar value IS in practice – where decision making is comprehensive and local.  Several municipal utilities offer solar tariffs that cut across traditional centralized silos of generation, transmission, and distribution systems: Sacramento, CA; Gainesville, FL; Austin, TX; and Palo Alto, CA to name several.  These city-run utilities aren’t held captive by capital returns or energy sales, but have a charter to deliver affordable and reliable energy to their customers.  And when solar does that better than anything else, it wins.

This suggests that the problem for clean energy is not cost competitiveness, but rather a regulatory deck stacked against decentralized power.  The solution is obvious: giving more authority to communities to chart their own energy future.  And it has benefits far beyond the grid, as self-reliant communities see solar as not just a valuable electricity source, but a way to keep valuable energy dollars circulating in the local economy.

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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.