Our Take, with Doug Sheridan
We argued in that post that renewables are no more the “cheapest” form of electricity than Bolt—the “fastest man alive”—is the world’s top marathoner.
Our Take, with Doug Sheridan
Last week, we kicked off our deep dive into the economics and implications of renewable energy with a post on Usain Bolt, the Olympic sprinter.
We argued in that post that renewables are no more the “cheapest” form of electricity than Bolt—the “fastest man alive”—is the world’s top marathoner. Thank you, readers, for your insightful comments on that post.
In this write up, we'll determine the cost of depending solely on renewable energy to sustain an entire grid under hyper-ideal circumstances (ie, conditions favorable to reducing renewables' generation costs). Specifically, we’ll assume a system of solar generation + battery storage in a shapable world we’ll call planet Pliable.
Understanding Pliable starts with its power demand profile. A full day divides into 12 hours of daytime with constant demand of 100 GW and 12 hours of nighttime with a constant demand of 50 GW. On Pliable, the sun stays perfectly positioned for solar energy generation throughout the cloudless day and fully sets at night. Every day, these conditions repeat without fail.
Acting on the advice of renewable energy advocates, we commit to meet 100% of Pliable's electricity needs with solar energy. To serve daytime demand, we install exactly 100 GW of solar panels, which enjoy 100% utilization during the day. We install an additional 50 GW of solar panels, combined with 50 GW of battery capacity, to meet night demand. The batteries fully recharge during the day and fully and evenly discharge at night.
Neither our solar panels nor our batteries require any operating or maintenance expense for the full 20 years of our project. Consequently, the cost of our solar-only system is limited to capital equipment and investor returns. Our assumptions for both are in line with those of the US in early 2024.
Our installed solar panels cost $1MM per MW, while our batteries cost $1.5MM per MW for a 12-hour duration ($125 per KWhr for 4-hour duration). Power prices are then set to give investors a 7% pre-tax ROIC. This results in the following…
A) Solar panel capital costs: 150,000 MW x $1MM = $150B
B) Battery capital costs: 50,000 MW x $1.5 MM = $75B
C) Total capital costs: $225B
D) Annual power sales to achieve 7% pre-tax ROIC = $21.24B
E) Annual power consumption = [ (100,000 MW x 12 daytime hours) + (50,000 MW x 12 nighttime hours) ] x 365 = 657MM MWhrs.
Finally, the unit cost of power in our solar-only world is calculated as D / E, or $32.33 per MWHr. This splits out as $21.55 during the day, and $53.68 at night.
Our conclusion? Sorry Greens, but $32.33 per MWhr isn’t game-changing… at all. In fact, given the idealized conditions and assumptions, it's rather underwhelming. After all, coal- and gas-fired plants in the US—ie, the real world—regularly generate power at or below $32 per MwHr on a sustained basis.
Are we mistaken here?
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#energy #renewables #solar