CSP represents over 6,000 MW of the over 15,000 MW of future solar projects that SEPA is tracking, but there are differences in project development between CSP and PV. PV can be built and sub-sections of the larger project can be energized over time, resulting in lower construction risk and balance-sheet impact. CSP projects need to be completed in full before commissioning, a period which takes several years from start to finish. [emphasis added]
PV projects, which ranged in size from 1-kilowatt residential installations to 48-megawatt power plants, have much shorter planning horizons and project completion times, along with lesser siting, permitting, financing and transmission requirements at these small- and medium-sized scales.
However, larger PV and CSP projects (those greater than 50 MW) require overcoming financing, siting/permitting, and transmission barriers that might emerge at these larger sizes. [emphasis added]
In drafts of ILSR’s forthcoming report on a distributed generation future (check back June 22!), I took some flak for my solar PV economies of scale analysis. In it, I used data from the California Solar Initiative (through 2009) to point out that most economies of scale in solar PV seem to be captured at a size of 10 kilowatts (a large residential-scale project).
“The solar statements seem way off base,” wrote one reviewer.
Upon further review, I stand by my initial claim. But, I note that the critics have a point, as well.
For deeper analysis, I grabbed data from Lawrence Berkeley Labs’ 2010 report Tracking the Sun III, which provided a very nice breakdown of installed costs for solar PV by project size. I then dropped those size ranges into the California Solar Initiative (CSI) data for the whole data set (2006-2011) as well as for just the past two years (2010 to present). The following chart illustrates the findings:
The historic data confirms my earlier analysis, that most economies of scale are achieved at small size. In the full CSI database, there’s a 23% decrease in per Watt cost when increasing project size from under 2 kW to 5-10 kW, but only a further 6% percentage point decrease in sizing up to over 1,000 kW. The other two curves are quite similar.
But the historic U.S. data is not the only story.
The Clean Coalition – a distributed generation advocacy organization – has different numbers on installed cost from their network of installer partners. These figures, data on very recent or proposed installations, tell a different tale, illustrated below:
In the Clean Coalition data, the savings from 5 kW to 25 kW are about 10%, but the savings from upsizing to 100 kW are a cumulative 21%, and growing to 1,000 kW offers a total of 28% off the 5 kW price per Watt. In other words, economies of scale continue strongly through the 100 kW size range.
Their data is not alone. In the German feed-in tariff, solar PV producers are paid a fixed price per kWh generated, with prices set according to the location of the solar PV plant (roof/ground) and by size (small, medium, large, etc). Overall, Germany is simply cheaper, with average installed costs for 10-100 kW rooftop PV installations of just $3.70 per Watt. But their economies of scale are also strong: there is a 10% price differential between rooftop solar arrays smaller than 30 kW and those 100-1000 kW, but an additional 15% price drop for projects over 1000 kW.
The conclusion is murky. Historical data in the U.S. supports my original assertion: economies of scale for solar PV are limited beyond 10 kW. But recent installed cost data and the German experience both suggest that there are stronger economies of scale up to projects 1,000 kW (1 MW) in size.
While seeming counterintuitive, a focus on smaller-scale distributed generation enables more and faster development of cost-effective renewable energy.
Last week I wrote about the illusion that we can “move forward on all fronts” in renewable energy development; rather, a bias toward centralized electricity generation in U.S. policy reduces the potential and resources for distributed generation.
In contrast, distributed generation provides unique value to the grid and society, and its development can also smooth the path for more centralized renewable energy generation.
First, distributed generation is cost-effective. Economies of scale for the two fastest-growing renewable energy technologies (wind and solar) level off well within the definition of distributed generation (under 80 megawatts and connected to the distribution grid). Solar PV economies of scale are mostly captured at 10 kilowatts, as shown in this chart of tens of thousands of solar PV projects in California. Wind projects in the U.S. are most economical at 5-20 megawatts, illustrated in a chart taken from the 2009 Wind Technologies Market Report.
Besides providing economical power relative to large-scale renewable energy projects, distributed renewable energy generation also has unique value to the electric grid. Distributed solar PV provides an average of 22 cents per kWh of value in addition to the electricity produced because of various benefits to the grid and society. The adjacent chart illustrates with data coming from this analysis of the New York electric grid. Grid benefits include peak load shaving, reduce transmission losses, and deferred infrastructure upgrades as well as providing a hedge against volatile fossil fuel prices. Social benefits include prevented blackouts, reduced pollution, and job creation.
Distributed wind and solar also largely eliminate the largest issue of renewable power generation – variability. Variability of solar power is significantly reduced by dispersing solar power plants. Variability of wind is similarly reduced when wind farms are dispersed over larger geographic areas.
Not only are integration costs reduced, but periods of zero to low production are virtually eliminated by dispersing wind and solar projects over a wide area.
As mentioned at the start, distributed generation also scales rapidly to meet aggressive renewable energy targets. Despite the conventional wisdom that getting big numbers requires big project sizes, the countries with the largest renewable energy capacities have achieved by building distributed generation, not centralized generation. Germany, for example, has over 16,000 megawatts of solar PV, over 80 percent installed on rooftops. Its wind power has also scaled up in small blocks, with over half of Germany’s 27,000 megawatts built in 20 megawatt or smaller wind projects. In Denmark, wind provides 15-20 percent of the country’s electricity, and 80 percent of wind projects are owned by local cooperatives.
With all these benefits, distributed generation can also smooth the way for centralized renewable energy, in spite of energy policies that favor centralized power. When distributed generation reduces grid stress and transmission losses by provided power and voltage response near load, it can defer upgrades to existing infrastructure and open up capacity on existing transmission lines for new centralized renewable energy projects. A focus on distributed generation means more opportunity for all types of renewable energy development.
It may seem counterintuitive, but distributed renewable energy should be the priority for reaching clean energy goals in the United States.
Have U.S. wind projects hit a size sweet spot? While average project capacity continues to grow, it’s largely because of increasing turbine size rather than adding more turbines to a wind farm.
The following chart illustrates, showing how the capacity of the average American wind project has more than doubled in a decade (to nearly 90 MW in 2009), but that almost all that growth can be attributed to a more than doubling in the average turbine size (from 0.71 MW to 1.74 MW).
Although the American definition of distributed generation may differ, it may be that the U.S. isn’t so different from Germany, where the country’s 27,000 MW of wind power is spread over 3,300 wind projects with an average project size of 9 megawatts. It may be that smaller wind projects are encountering fewer political and transmission barriers than their larger neighbors.
Caveat. The linked post shows an average of all installed German wind projects, and it would be interesting to see how Germany’s size progression compares to the U.S.
Updated 3 PM: Preliminary numbers had suggested that Southern California Edison’s distributed rooftop solar PV purchase would be among the most cost-effective solar projects in the world, and data released yesterday confirmed that:
Southern California Edison has selected 250 MW worth of solar bids from companies able to produce solar electricity for 20 years for less money annually than the 20 year levelized cost of energy of a combined-cycle natural gas turbine power plant.
SCE’s bidding process for smaller renewable projects is smart. These small projects do not face the multi-year bureaucratic delays for extensive reviews, like most utility-scale solar, so each small unit can be built as quickly as normal commercial rooftop solar projects. They are made up of multiple distributed solar installations of under 20 MW, which in combination total a power plant-sized 250 MW.
…The requirement is that the renewable energy has to be priced to cost no more than the Market Price Referent (MPR) – which is an annual calculation of the 20 year levelized cost of energy of a combined cycle gas turbine.
The MPR has recently been around 11 cents per kilowatt-hour, so the solar PV projects will produce electricity for less than the retail rate in southern California. There’s indication of enormous distributed PV demand, because SCE received bids for up to 2,500 MW of projects, but only accepted 250 MW.
The title of the link won’t give it away, but I was interviewed on Stephen Lacey’s most recent REW podcast on superconducting technology for transmission. He generously provided me some time to contrast the lead topic (centralized renewable energy reliant on transmission) with the economics of distributed renewable energy sources.
The California Public Utility Commission officially launched its Renewable Auction Mechanism (RAM)* last week, to spur more development in renewable energy projects smaller than 20 megawatts.
The good and bad news is summarized quite well by the FIT Coalition, with the good news being:
- A strong focus on the < 20 MW market segment, also known as Wholesale Distributed Generation if the project connects to the distribution grid.
- Recognizes value of “locational benefits,” rewarding projects that site close to load to avoid unnecessary transmission expenditures – “(massive capital expenditures, decade-long build-outs, and significant line and congestion loses)”
- Requires utilities to provide specific grid details to help developers select project sites before they commit.
Points 1 and 2 highlight an increasingly recognized issue: meeting the near-term benchmarks in state renewable energy standards may be impossible if states rely on centralized, transmission-dependent projects. Sub-20-megawatt projects can quickly sum to large quantities of renewable energy, capture most economies of scale, and come online much faster that large, centralized projects.
Point 3 is huge, as well, because it finally addresses a market failure where distributed energy project developers could not get information about grid “sweet spots” for plugging in smaller scale renewable energy without significant infrastructure upgrades. It’s an issue too rarely discussed, with a rare exception being our 2008 report on Minnesota’s potential to meet its state RPS without significant new high-voltage transmission lines (backed by two state-sponsored studies).
The bad news is that the CPUC missed several opportunities to maximize the potential for distributed generation:
- It allows participation by transmission-connected projects, which will not carry the same advantages as distribution-connected projects – “producing energy close to load and avoiding the significant costs, timeframes, and environmental issues associated with transmission.”
- It institutes a lop-sided playing field that will favor well-established companies and larger projects.
- It perpetuates the high failure rate of solicitation programs: “In general, California’s solicitation-based RPS programs result in more than 95% of the bid capacity to be rejected by the utilities or to be abandoned by developers in the end due to underbidding.” These rejections lead to enormous stranded development costs, as much as $100 million in one solicitation.
Despite the bad news, it’s a promising “pilot” program that will support 1 gigawatt of distributed renewable energy. Let’s hope it improves with time.
*And folks suggest feed-in tariff is a lousy policy name…Speaking of which, a number of media stories indicate that this is California’s take on a “feed-in tariff.” That’s like saying like soccer is Europe’s take on American football. One is an auction, the other is a standard contract with prices based on the cost of generation.
Photo credit: alforque on Flickr
Update: It’s important to note that this refers to the net installed cost. In other words, the installed cost dropped because residential solar customers were now getting an uncapped federal tax credit. We wrote in this 2009 report about the perverse problems created by the $2,000 cap on the federal residential solar tax credit. The uncapping … Read More