HEADLINE: “When we examine the cost of solar energy”, By DOUG SHERIDAN

“…we assume all energy comes from new assets built at current costs.

When we examine the cost of solar energy, we assume all energy comes from new assets built at current costs. Those assets are assumed to power a hypothetical grid in a US region rich in both natural gas and sunlight.

The results of the analyses show a breakeven cost of generation of $54.24 per MWh for a 100% newbuild gas-fired system. Each 10% market share increment captured by newbuild solar raises the system breakeven by $3.21 per MWh. At 50% solar penetration, the breakeven reaches $70.39 per MWh. The findings highlight the economic challenges of solar energy.

The real-world offers an even bleaker picture, however. That’s because new solar power is, in reality, being added to grids already being served by older, existing gas-fired generation. The large influx of incremental new solar capacity is lowering wholesale energy prices and forcing these older gas-fired assets to the back of the line.

Okay, so what's the problem?

Well, these older gas-fired assets were built under the expectation they’d be given a fair shot at achieving sufficient returns over their operating lives. The rules changed when solar power, boosted by subsidies and regulatory favoritism, came into play.

Today, subsidized solar captures a large share of volumes and revenues on many systems, leading to much lower returns for gas-fired generation. With no way to reverse their investment decision, older plants must simply accept whatever price they can get in oversupplied markets. For now, this cannibalization of legacy assets is keeping a lid on wholesale prices. In the long run, however, it will only push prices up as legacy assets retire and systems become laden with too much of the wrong kind of capacity.

This erosion of gas-fired generation’s economics rarely makes the news. Yet, its impact is clear on systems like ERCOT, where solar capacity is growing quickly. Gas-fired project developers once felt confident in Texas. Now, they hesitate to invest on a system where their financial prospects are uncertain. It’s totally understandable.

Even the $10B Texas Energy Fund, which offers subsidized loans for new gas-fired projects, is seeing developers unable to come to terms (two more just this week). Our guess is developers distrust the state’s poor record on regulatory and economic fairness. Having poisoned the well for dispatchable gas-fired generation to such a degree and for so long, the Texas grid now faces an increasingly risky future when it comes to reliability and affordability.

It's clear subsidized solar is disrupting grid economics and threatening reliability on systems like ERCOT. If history is any indication, Texas officials will attempt to hide the damage, or blame it on demand growth, instead of tackling the issue head on. Bad idea. The longer policymakers allow time-tested dispatchable generation to be undermined on ERCOT, the worse the outcome will be for Texans.

The excellent chart is per Doug Lewin

🔆 🏭⚡👀

#ERCOT #texas #energy

BOTTOMLINE: “Today, subsidized solar captures a large share of volumes and revenues on many systems, leading to much lower returns for gas-fired generation. With no way to reverse their investment decision, older plants must simply accept whatever price they can get in oversupplied markets. For now, this cannibalization of legacy assets is keeping a lid on wholesale prices. In the long run, however, it will only push prices up as legacy assets retire and systems become laden with too much of the wrong kind of capacity.”