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Wind/Solar Expansion Will Require Perpetual Subsidies

Schalk Cloete's picture
Research Scientist Independent

My work on the Energy Collective is focused on the great 21st century sustainability challenge: quadrupling the size of the global economy, while reducing CO2 emissions to zero. I seek to...

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  • Jan 22, 2018 1:00 pm GMT


  • Wind/solar advocates point to continued cost reductions due to technological learning.
  • Wind/solar opponents point to continued value declines due to intermittency.
  • It turns out that these two effects cancel out fairly evenly.
  • Wind and solar will thus remain as subsidy-dependent as they are today.


There can be no doubt that wind and solar power will be important players in the energy system of the future. Over the past decade or so, these sources have grown almost as fast as nuclear power did in the seventies (see below). Since 2010, wind and solar have achieved an almost perfectly linear expansion of about 5.5% of global electricity production per decade (2.3% of global primary energy per decade).

Although wind and solar are settled as important energy players, the magnitude of their contribution to the future energy system is a topic of vigorous debate. The advocate camp points to the continued cost declines of these technologies, often claiming that wind/solar power will soon achieve competitiveness without subsidies, spelling the end of conventional power sources. The following graphs from IRENA for wind and solar illustrate this argument.

In the opposing camp, people point to the variable and non-dispatchable nature of wind and solar power steadily reducing their value as market share increases. New wind or solar capacity will tend to generate power at about the same time as existing generators, thus creating an oversupply and reducing the value of all wind/solar power in the system. This effect is illustrated below showing that 15% market share will reduce the market value to just over 80% of the average for wind and just over 60% for solar.

This article will estimate how these two competing effects will play out over coming years.

Wind and solar value declines

The first thing to clarify in this study is that the value declines illustrated in the above figure represent the entire installed base. When looking at the expansion of wind and solar power in a race between cost and value, it is best to consider the marginal value of new generating capacity. Marginal value implies that existing (more expensive) capacity retains its initial value, while new (cheaper) capacity absorbs the value decline it causes to existing capacity. Mathematically stated, the integral under the marginal value curve (orange area below) must equal the area of a rectangle under the average value curve (blue shaded area below).

Naturally, the marginal value curve declines more rapidly than the average value curve. This larger value decline is more appropriate for use during the expansion period of the typical deployment S-curve where capacity installations greatly outweigh retirements. However, when the S-curve flattens out (installations mostly compensate for retirements), the average market value becomes the appropriate measure. Since wind and solar will expand for the next couple of decades, the marginal value curve will be explored first in this study.

The marginal values of wind and solar calculated from the original data are shown below. As outlined above, the marginal value curves were determined by ensuring that the integral of the marginal value curve equals the area of a rectangle below the average value curve for all the data points.

Cost vs. marginal value

Although estimates on cost declines of wind and solar power are scattered widely, the average tends to be about 10% per capacity doubling for wind and 20% per capacity doubling for solar (see this review for example). These numbers will be used in this study.

Calculations of cost and value will be made up to 15% wind or 15% solar power. Note that this represents an optimistically high value factor because simultaneous deployment of wind and solar will further reduce value by increasing the number of non-dispatchable generators in the system.

Based on data from the BP statistical review, we will start the study with wind and solar respective global market shares of 4% and 1.4%, and respective capacities of 450 GW and 264 GW. We will assume starting installation costs of $1500/kW for both wind and solar, while future wind and solar capacity are assigned capacity factors of 27% and 18% respectively. Operating life of wind and solar plants are assumed to be 25 years and 30 years respectively with no degradation. A 6% discount rate is employed and O&M costs are set to 2% of capital investment per year. Finally, we assume an average electricity wholesale value of $50/MWh and a doubling of global electricity demand by the time that wind and solar reach 15% market share each.

It is clear from the figure above that a persistent gap of about $20/MWh is maintained between cost and value as wind and solar capacity is expanded. This means that the cost declines experienced by wind and solar power are almost exactly cancelled out by value declines. When looking at the ratio of cost to value plotted below, the attractiveness of wind and solar power actually declines with increasing deployment.

Cost vs. average value

If wind and solar can double their constant expansion rate over the past seven years to about 10% combined market share per decade, we could end up with about 15% wind and 15% solar by 2050. By that time, the deployment S-curve may well start to flatten out as replacements of old capacity start to account for a large portion of new builds.

As discussed earlier, this implies that we should start to use average value instead of marginal value for wind/solar valuation. The marginal value graph given above is therefore repeated below for average value. Clearly, the gap between cost and value is significantly smaller in this case, but the gap still persists.

As more capacity is deployed to replace retired capacity and facilitate a continued expansion of global electricity demand, costs will continue to decline. However, given that the installed base will be 10-20 times larger at this point than it is today (about 3300 GW of wind and 4700 GW of solar), another cumulative doubling of total installed capacity will take several decades. Further cost declines beyond this point will therefore be very slow.


This analysis has shown that the subsidization requirements of onshore wind and solar PV will remain largely unchanged over coming decades. Cost reductions due to learning are cancelled out by value reductions due to the variable and non-dispatchable nature of these electricity sources.

Naturally, there are many ways to counter the value reduction of wind and solar power, but all of these methods impose large costs. Energy storage easily gets the most press, but, as outlined in an earlier article, the cost of these technologies needs to fall by at least an order of magnitude before they can start to challenge dispatchable power plants.

It is also important to point out that an increase in CO2 price will further reduce the value of wind and solar (below) because this will require low-emission backup power plants. These plants will have higher capital costs, thus increasing the cost related to the under-utilization of capital to accommodate wind and solar. A total ban on nuclear and CCS increases the market value, but total system costs and CO2 emissions will increase by about 25% and 150% respectively in this scenario (source).

We should also keep in mind that a large-scale shift in decarbonization strategy from wind/solar technology-forcing to true technology neutrality will strongly reduce the value of existing wind/solar generators (similar to the high CO2 price scenario in the figure above). If such a shift is done at a late stage when lots of wind and solar capacity is already deployed, the economic consequences could be severe. Wind and solar technology-forcing therefore remains a costly and risky pathway to combat climate change.

As always, I should emphasize that there are many places on Earth where wind and solar power can be deployed with significantly higher capacity factors than those assumed in this study. Higher capacity factors both decrease cost and increase value, strongly increasing attractiveness. Wind and solar will therefore certainly remain important (albeit not dominant) players even if we finally manage to replace inefficient technology-forcing policies with a more rational technology-neutral framework. Given the recommendations of climate science, implementation of such a technology-neutral approach is a matter of great urgency.

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Hops Gegangen's picture
Hops Gegangen on Jan 23, 2018

No one can really predict where technology will go: SMRs, CRISPR-modified algae, advanced PV solar, higher and bigger wind turbines, batteries, OTEC, and maybe even fusion.

Put a price on the negative externalities of carbon emission, and let the chips fall where they may.

Nathan Wilson's picture
Nathan Wilson on Jan 23, 2018

“… S-curve may well start to flatten … this implies that we should start to use average value instead of marginal value for wind/solar valuation.”

I would think that the valuation preference would depend on who’s building the new capacity. Regulated (and state owned) utilities must always justify new builds on a marginal basis (is the new capacity justified by itself or not?).

In competitive markets, I would think “average value” would be preferred, since a decline in the value of the existing fleet would be shared by all plant owners, not just the developer doing the new construction. It does mean however that developers can be expected demand that their investment generate profits in spite of falling future value, thus requiring higher subsidies.

In either case, it is clear that pro-renewable policies must be accompanied by pro-CCS policies, or else deep reductions in CO2 emissions will be very unlikely.

Helmut Frik's picture
Helmut Frik on Jan 23, 2018

If solar and wind are accompanied by low capacity cost – high fuel cost peakers, and not by baseload power plants ( which is likely) then the prices defined by fuel costs of the last needed power plant will rise, which reduces additional spendings on wind and solar outside the market.
What is missing in the considerations is the factor grid.
For a thought experiment let’s assume a worldwide copperplate.
this will not change the capacity factor of the sigle wind or solar producer, but the output of the combined producers to the grid will be practically constant around the clock, as will be demand.
Which means that the prices will only go towards zero when almost 100% penetration with wind and solar is reached, and only when there is some reserve margin in renewable power generation ther will be zero power prices (always then) .
If then payments aouldbe needed – would thisbe a subvention, if no other power producer could deliver the same power for a lower price? Or a market malfunction?
I#m afraied things are not that easy.

Jarmo Mikkonen's picture
Jarmo Mikkonen on Jan 23, 2018

Schalk, it looks like you do not believe in the feasibility of 100% renewable electricity, let alone 100% renewable energy. Norway, Iceland and other special cases with large hydro resources excluded.

As wind and solar continue their subsidized growth and the value of the electricity they generate falls, doesn’t it make all other forms of generation, not just wind and solar, unprofitable?

Willem Post's picture
Willem Post on Jan 23, 2018

In New England, ridge line wind is about 9 c/kWh, heavily subsidized, and large-scale, field-mounted, solar about 13.5 c/kWh, heavily subsidized.

There cannot be heavy penetration of wind and solar electricity without storage and standby generation because BOTH may be near zero simultaneously; i.e., instant peaking, filling-in and balancing by the other generators is needed 24/7/365.
The p.f.b. function cannot be performed by wind and solar.
It can be performed by battery systems, but that is VERY expensive. See URLs.

The euan mearns URLs show the type of analysis required to determine storage capacities

The huge RE subsidy giveaways are:

1. Federal and state ITCs; upfront giveaways to offset any taxes.
2. Federal and state taxes not paid due to rapid depreciation write-offs during there first 6 years
3. Federal and state taxes not paid due to loan interest deducted from taxable profits.
4. School portion of property taxes not paid; households have to pay more.
5. State sales taxes not paid on some solar system components.
6. In addition, the electricity is purchased at 13 – 14.5 c/kWh, but could have been bought at NE midday wholesale at 6 c/kWh.

The state giving investment tax credit, ITC, money to the tax shelters of multi-millionaires, who own the larger systems, and not collecting taxes due to rapid depreciation write-offs, has resulted in contributing to chronic budget deficits.

The addition of “excess paid above New England midday wholesale prices” has resulted in electric rates being higher than they would have been.

Solar Electricity Cost During 25 Years of Operation

Large-scale solar projects usually are financially structured in three phases:

Phase 1, years 1 – 6, the subsidy and write off phase; short term loan being paid off.
Phase 2, years 7 – 18, remaining subsidy phase; long-term loan being paid off.
Phase 3, years 19 – 25, remaining subsidy phase; loans paid off

Phase 1, year 1 – 6: Dividing the “Subsidy costs” and the “Excess paid above NE midday wholesale prices” by the 6-y production yields 14.0 c/kWh and 7.0 c/kWh, respectively, and adding the 6.0 c/kWh for NE midday wholesale, yields a total production cost of 27.1 c/kWh, during the first 6 years of operation.

Phase 2, year 7 – 18: The remaining subsidy is the “Excess paid above NE midday wholesale prices” of about 7 c/kWh. Adding other costs, such as paying off long-term loans, the production cost decreases to about 9.8 c/kWh

Phase 3, year 19 – 25: The remaining subsidy is the “Excess paid above NE midday wholesale prices” of about 7 c/kWh. Adding other costs, the production cost decreases to about 8.2 c/kWh.

The weighted average price of all 3 phases is about 13.036 c/kWh for this sample SO project. This price is similar to the average price of the 4 auctioned SO solar projects. See table 3 and URL.

NOTE: The 27.1 c/kWh is less in sunnier areas of the US, such as Texas and the Great Plains.

Bob Meinetz's picture
Bob Meinetz on Jan 23, 2018

Wind and solar will therefore certainly remain important (albeit not dominant) players even if we finally manage to replace inefficient technology-forcing policies with a more rational technology neutral framework.

Schalk, I’m trying to understand how a “technology neutral framework” could possibly prove more rational or more efficient for addressing climate change. Profitability thus becomes our chief consideration, and would be a recipe for disaster.

There are certainly no climatologists on board with the idea there’s a free market solution to climate change. That’s what got us into this mess.

Engineer- Poet's picture
Engineer- Poet on Jan 23, 2018

I can’t speak for Schalk, but a “technology neutral framework” sounds to me like something which doesn’t mandate that the square peg of wind and solar be pounded into the emissions-elimination round hole.

The whole reason we have this dysfunctional crazy-quilt of subsidies and caps and Renewable Portfolio Standards and a “clean power plan” which cut off at 550 gCO2/kWh is that a simple, technology-neutral system like a carbon tax would result in nuclear energy taking a massive share of the market.  Everything else designates winners by specifying technology.

Schalk Cloete's picture
Schalk Cloete on Jan 23, 2018

Wow… Subsidy-free offshore wind. Do you have any credible sources to back these claims? I would be very interested in seeing how offshore wind can be operated profitably without subsidies anywhere in the world.

I clearly stated that there are locations where significantly higher capacity factors can be expected. I have also accounted for technology improvements.

Fact is that the global average wind capacity factor has stagnated around 25% for the past 6 years according to the BP statistical review. Maybe 60% CFs will become possible in select locations in the future, but using such high numbers to assess the global potential of wind power makes no sense.

Even if PV panels remain physically operable for 50 years, it is unlikely that the majority of plants will be economically operable for such a long time. After 50 years, electricity output will be 50-75% of the original value and O&M costs will become significantly higher as all plant components age. Also note that PV O&M is generally a fixed cost ($/kW/year), implying that reduced output magnifies $/MWh costs. By that time, the PV plant will probably also have to sell electricity at market values, which will be very low because of all the additional wind and solar added to the grid.

P2G will be quite expensive: Rich countries could afford it, but counting on this for the world in general is unwise.

Schalk Cloete's picture
Schalk Cloete on Jan 23, 2018

Totally agree. If all people concerned about climate change could stop arguing about their pet technologies and unanimously lobby for technology-neutral climate policies, we would be on a much better track.

Schalk Cloete's picture
Schalk Cloete on Jan 23, 2018

True, the average and marginal value curves are just two different interpretations of the same information. It is just simpler to plan for constant future revenues than for future revenues that will fall at an uncertain rate. Hence, the marginal value curve is more appropriate until the point where most new builds do not change the market share (because they replace retirements).

Agreed about CCS as well. The current momentum behind RE technology-forcing is one of the reasons why I work on CCS. CCS is not an attractive technology, but its importance continuously increases with the ongoing inefficiency of climate policy.

Schalk Cloete's picture
Schalk Cloete on Jan 23, 2018

Well, as the value of wind/solar falls, the value of dispatchable power rises. See for example slides 16 and 17 here: Dispatchable plants can therefore sell less electricity, but at higher prices.

The fact is that other forms of electricity generation must remain profitable for wind/solar to have any value at all. Without reliable dispatchable power generators, intermittent wind and solar simply cannot sustain a modern economy. Electricity prices during times when wind/solar generation is low must therefore remain high enough to sustain dispatchable plants.

Schalk Cloete's picture
Schalk Cloete on Jan 23, 2018

By technology-neutral, I of course mean an equal “subsidy” to all technologies that cut carbon, e.g. a carbon tax/cap. I think this is something that climatologists generally agree on.

Bob Meinetz's picture
Bob Meinetz on Jan 23, 2018

Schalk, I’m afraid the argument wouldn’t end there (thanks for clarification below).

Define “neutral” – do we allow a credit for unverified (or verified) CCS to render natural gas or coal carbon-neutral? What about backup for intermittent renewables – are solar/wind really neutral, or do they make us dependent on natural gas? Is nuclear carbon-neutral or (as Mark Jacobson insists) must we include the carbon emissions of incinerated cities, the inevitable product of nuclear war, the inevitable product of proliferation?

I agree with Hops that no one can really predict where technology will go, and maybe 50 years with a revenue-neutral carbon tax would permit us to try new technologies, sort out what works/doesn’t, and find out what’s realistic/isn’t. But because we don’t have 50 years and we only get one chance, the argument is probably just beginning.

Hops Gegangen's picture
Hops Gegangen on Jan 23, 2018

In developing a theory to explain the ice ages, Arrhenius, in 1896, was the first to use basic principles of physical chemistry to calculate estimates of the extent to which increases in atmospheric carbon dioxide (CO2) will increase Earth’s surface temperature through the greenhouse effect.[2][19][20] These calculations led him to conclude that human-caused CO2 emissions, from fossil-fuel burning and other combustion processes, are large enough to cause global warming. This conclusion has been extensively tested, winning a place at the core of modern climate science.[21][22] Arrhenius, in this work, built upon the prior work of other famous scientists, including Joseph Fourier, John Tyndall or Claude Pouillet. Arrhenius wanted to determine whether greenhouse gasses could contribute to the explanation of the temperature variation between glacial and inter-glacial periods.[23] Arrhenius used infrared observations of the moon — by Frank Washington Very and Samuel Pierpont Langley at the Allegheny Observatory in Pittsburgh — to calculate how much of infrared (heat) radiation is captured by CO2 and water (H2O) vapour in Earth’s atmosphere. Using ‘Stefan’s law’ (better known as the Stefan-Boltzmann law), he formulated what he referred to as a ‘rule’. In its original form, Arrhenius’ rule reads as follows:

if the quantity of carbonic acid [ CO2 + H2O → H2CO3 (carbonic acid) ] increases in geometric progression, the augmentation of the temperature will increase nearly in arithmetic progression.
The following formulation of Arrhenius’ rule is still in use today:[24]

{\displaystyle \Delta F=\alpha \ln(C/C_{0})} \Delta F=\alpha \ln(C/C_{0})
where {\displaystyle C_{0}} C_{0} is the concentration of CO2 at the beginning (time-zero) of the period being studied [(If the same concentration unit is used for both {\displaystyle C} C and {\displaystyle C_{0}} C_{0}, then it doesn’t matter which concentration unit is used.)]; {\displaystyle C} C is the CO2 concentration at end of the period being studied; ln is the natural logarithm (= log base e (loge)); and {\displaystyle \Delta F} \Delta F is the augmentation of the temperature, in other words the change in the rate of heating Earth’s surface (radiative forcing), which is measured in joules of heat energy per second, per square meter — a joule per second is one watt.[24] Derivations from atmospheric radiative transfer models have found that {\displaystyle \alpha } \alpha (alpha) for CO2 is 5.35 (+/- 10%) for Earth’s atmosphere.[25]

Arrhenius at the first Solvay conference on chemistry in 1922 in Brussels.
Based on information from his colleague Arvid Högbom, Arrhenius was the first person to predict that emissions of carbon dioxide from the burning of fossil fuels and other combustion processes were large enough to cause global warming. In his calculation Arrhenius included the feedback from changes in water vapor as well as latitudinal effects, but he omitted clouds, convection of heat upward in the atmosphere, and other essential factors. His work is currently seen less as an accurate quantification of global warming than as the first demonstration that increases in atmospheric CO2 will cause global warming, everything else being equal.

Nathan Wilson's picture
Nathan Wilson on Jan 24, 2018

…wind for <2cnt/KWh (as already in the plains in USA…

That US price is after the 2cnt/kWh subsidy, and the accelerated depreciation, and does not include transmission charges. When you correct for these factors, as well as the uncommonly good wind resources of that area, the inferred typical global cost is probably even higher than the 5cnt/kWh this article assumes.

You totally forgot the important role PtG …

Dispatchable fuel synthesis helps to reduce curtailment, but it does not help with the declining value, since the fuel production plants will only buy electricity when the cost is near zero. This industry takes advantage of the problem (and is dependent on it), it does not solve the problem.

Nathan Wilson's picture
Nathan Wilson on Jan 24, 2018

There is no need to speculate about the effect of large grids, the US NOAA (i.e. the national weather service) and the University of Boulder have done a study in 2015 on this very subject (Clack et al), using system modelling software developed by NREL, and NOAA weather data. Even for a country as large as the US, the super grid was only somewhat helpful.

Their model (which held nuclear and hydro constant while growing wind and solar) found that in going from 256 grids to one US super-grid, the fraction of demand served by gas fell from 61% to 38% (for the mid-cost renewables, mid-cost gas scenario, which is representative, since renewables and gas have dropped in cost since the study). This is helpful, but not nearly enough.

A very obvious effect of super-grids is that locations with the best renewable resources will crowd other regions out of the market. For example, if Middle East and North African countries were allowed to connect into a European super-grid, all European PV would be priced out of the market (both due to higher kWh costs as well as a much higher fraction of cloudy days which imply use of dirty backup fuels). Thus we can expect Europe to resist such a move, and this explains why the Desertec proposal has never been accepted.

Leo Klisch's picture
Leo Klisch on Jan 24, 2018

The Citizens Climate Lobby ,CCL, is nonpartisan and focused only on getting equal numbers of Dems and Repub. – 66 at this point – to support a revenue neutral carbon tax.

Jarmo Mikkonen's picture
Jarmo Mikkonen on Jan 24, 2018

Schalk, I was thinking in longer term and in a situation where wind/solar generation increasingly covers or exceeds peak demand.

If we look at Germany, they will probably be in this situation by 2022 when the last nuke plant is closed. The number of hours dispatchable plants can run profitably will decrease, especially as more offshore wind comes online.

As you said, despatchable power prices will rise. However, the number of hours despatchable plants can run profitably matters, too. If the expected revenue does not cover costs, they take the plants offline.

The German government has already taken measures to secure reliable dispatchable generators in case of market failure by creating a capacity reserve:

I interpret this as an acknowledgement of two trends:
First, that market failure is expected because power prices will not be high enough to support dispatchable power generators.
Second, the government will need to subsidize dispatchable power plants to keep them online.

Helmut Frik's picture
Helmut Frik on Jan 24, 2018

I would not declare the US grid as large in this context. but 23% more tells in which direction larger grids go. Add Mexico and Canada, and most likely Alaska, and you get to the right dimension.
Sice clack at al are on the side opposing a high renewable share as it seems it is likely that there are a lot of solutions with more than 61 Q renewables even when the grid is restricted to the main part of the US, which in practice it is not, it is interconnected with Canada and Mexico.
Remeber China which has nearly exactly the same size like the US including Alaska presses a lot to expand interconnectors to improve the eurasian grid interconnections. They think in a grid scale that is by factor 10 bigger than the scale clack et al have in mind.

Schalk Cloete's picture
Schalk Cloete on Jan 24, 2018

Interesting about the subsidy-free offshore wind bids. I tried to find some details on the tenders, but could not.

Based on every reputable expert review of offshore wind costs I have seen, subsidy-free offshore wind should be completely impossible. See for example the recent Nature Energy article (main graph pasted below): Costs are generally accepted to be well above $100/MWh.

Engineer- Poet's picture
Engineer- Poet on Jan 24, 2018

CCL is not technology-neutral, however.  It talks exclusively about “renewables”.

Schalk Cloete's picture
Schalk Cloete on Jan 24, 2018

I don’t fully understand the inner workings of electricity market, but I would imagine that, if a enough dispatchable plants close down due to unprofitability and security of supply becomes questionable, prices will quickly rise to ensure that no further dispatchable plants need to retire. Given our dependence on reliable electricity, customers will quickly abandon any supplier that allows the lights to go out. Suppliers in competitive markets will pay well to avoid this situation, ensuring the profitability of dispatchable power stations.

Germany certainly is an interesting case study and it will be very interesting to observe developments over coming years. It at least seems from the link you gave that their first option is to rely on free market price signals.

Engineer- Poet's picture
Engineer- Poet on Jan 24, 2018

They think in a grid scale that is by factor 10 bigger than the scale clack et al have in mind.

Clack et al. used Jacobson’s assumptions about grid size.

I suspect that the USA accounts for at least half of the electric generation and consumption of the two American continents.  If this grid must be expanded by a factor of 10, you are quite literally talking about a system which is forced to span the entire globe.  The capital costs alone would be crushing, and the technological and security risks would rule it out.

Willem Post's picture
Willem Post on Jan 24, 2018

Revision to above comment, which shows the TWh of storage required:

1) The euanmearns URLs show the type of analysis required to determine seasonal storage capacities
Seasonal storage about 20 TWh
About 2.7 TWh of storage would be needed for seasonal storage
As much as 50 TWh of storage would be needed to balance ERCOT’s wind and solar generation against ERCOT’s demand over the three-year period considered in this 100% renewable scenario.

2) The windtaskforce URLs show the type of analysis required to determine wind/solar lull storage capacities
The actual energy in the battery storage system would need to be about 13650 GWh, or 13.65 TWh, to cover 2 consecutive wind/solar lulls in winter, because the batteries are assumed not fully charged at the start of the lull, and batteries should not be frequently discharged to less than 50%, as it would significantly shorten battery life.
Storage discharge would be 186 x 8 = 1488 GWh for 2 consecutive 4-day wind/solar lulls in winter. See table 5
The actual energy in the battery storage system would be at least 2 times 1488 = 2.976 TWh, say 3 TWh.

Helmut Frik's picture
Helmut Frik on Jan 24, 2018

I do not say it must be 10 times bigger, I say the chines engineers are eager to extend their interconnectors to that size. It is not a must, but it maxes everything a nobrainer. Since it is just a strengthening of existing grids, I do not see your technological point, the grid itself is already there. And security- well it removes allte supply risks which exist with fossil fuels and nuclear generation. So having less risks is bad?

Helmut Frik's picture
Helmut Frik on Jan 24, 2018

For the first 99-99,9% of energy or about 90% of capacity germany relies on free markets, but for the last bit of energy, and a bigger last bit of capacity, it has a reserve in seveal ways to be sure the lights stay on – something similar can be done with renewable power generation, but this would change market behaviour then there too. but it’s not a nenergy only market then. The last share of capacity is always subisdised in some way, independent of mode of generation.

Bob Meinetz's picture
Bob Meinetz on Jan 24, 2018

EP, seems the question comes down to the following: when energy is truly technology-neutral, how does the square peg of a carbon tax get pounded into the profitability round hole?

Gerry Runte's picture
Gerry Runte on Jan 24, 2018

Agree regarding getting the real costs of so called “externalities” incorporated, but letting the chips fall where they may implies the use of unlimited funds and lots of time, which we do not have. The continuum of new technological solutions, from conceptual to near commercial, needs to be culled and prioritized on the basis of probability and timing of success. There will be no single savior here, no silver bullet. What’s needed is a portfolio investment strategy.

Jarmo Mikkonen's picture
Jarmo Mikkonen on Jan 25, 2018

Schalk, in the context of Germany, generation costs and competitive markets seem a bit irrelevant. Consider the EEG levy that Germans pay in their electricity bills to support renewables. It exceeds the wholesale value of all electricity generated in Germany.

Germany will likely be the first country where wind and solar generation will exceed demand when the weather is favourable and it will be very informative to see what solutions they will apply.

Willem Post's picture
Willem Post on Jan 25, 2018

I suggest you read my article.
The costs are economic costs to the US and NE economies.
There is no free lunch.
One person’s subsidy is another person’s tax.
The wholesale prices are stated at the beginning of my comment
The economic costs are as described in my comment.

Willem Post's picture
Willem Post on Jan 25, 2018

I suggest you read my articles, which are based on no nuclear, no coal and no gas by 2050.
Storage capacity, TWh, and cost, $trillion, to cover two consecutive wind/solar lulls would be as described the articles

Schalk Cloete's picture
Schalk Cloete on Jan 25, 2018

I saw the reports of the bids, but was looking for more details. From some snippets of details in the articles I read, it seems like the typically large grid connection costs of offshore wind are covered (which is a form of subsidy). It also appears that companies are speculating on significantly higher wholesale electricity prices, low interest rates and large future technology improvements and plan to reassess their investment decisions at a later stage.

One article also states that BNEF estimates the cost of the 700 MW Dutch wind farm at €2.7 billion. With a 50% capacity factor, 6% discount rate and 25 year lifetime with no degradation, this still returns a LCOE of €87/MWh, so I remain quite confused how these companies expect to make any money from these projects. Setting the discount rate to 3% (assuming that only financial costs are covered with zero profit for the plant operator) still yields a LCOE of €69/MWh (about twice the wholesale price). I can understand if an oil company like Statoil would be willing to build such a loss-making project to boost its green credentials and diversify its portfolio, but specialized wind developers without a steady stream of oil revenues need profit to survive.

If you have any link to a detailed description of the terms of the bids, I’d be quite interested to take a look.

Levis Kochin's picture
Levis Kochin on Jan 26, 2018

The only thing that is declining more rapidly than the cost of solar power is the value of solar power.

Levis Kochin's picture
Levis Kochin on Jan 26, 2018

Storage is no real problem. Just pile up brown coal.
Germany will soon lead the world in the burning of coal to power automobiles.

Levis Kochin's picture
Levis Kochin on Jan 26, 2018

In the US at the current costs of electric power from new nuclear plants, new natural gas power plants, new solar power, new wind power and old coal plants a carbon tax tax would completely shut down all coal powered plants before inducing the construction of new nuclear power plants.

Willem Post's picture
Willem Post on Jan 26, 2018

That 200 TWh of gas will produce at most 100 TWh of electricity

Leo Klisch's picture
Leo Klisch on Jan 26, 2018

Support CCL and advocate for nuclear

Nathaniel Pearre's picture
Nathaniel Pearre on Jan 26, 2018

“a physics study which proves a change in CO2 concentration has an effect on global temperatures”

Can you specify precisely what you would consider proof? Proof is not really a thing that science delivers, just corroborating findings or confounding findings.

Nathaniel Pearre's picture
Nathaniel Pearre on Jan 26, 2018

“Any reradiation from the CO2 molecule is exactly at its resonant frequency wavelength of 15 microns. A Beers law calculation shows the mean path of that radiation to be 1 meter, thus the back radiation is virtually zero and when you allow for the loss of energy by collision the back radiation effect becomes infinitely small. All these factors are totally ignored by the IPCC,
A rather simple calculation shows that when the earth’s temperature increases from 293 K to 294 K, using the 4th power Stefan’s law, the outgoing radiation increases by 1,35%. Therefore if the CO2 increases the earth’s temperature by 3 C a 1 C increase will add .04 C, insignificant!”

There seems to be a problem in your application of physical principles. You find back radiation to be “infinitely small”, but outgoing radiation to change by 1.35% for a small change in surface temperature. Clearly those two quantities are controlled by the same processes. Can you explain the difference?

Bob Meinetz's picture
Bob Meinetz on Jan 26, 2018

A Beers law calculation shows the mean path of that radiation to be 1 meter, thus the back radiation is virtually zero and when you allow for the loss of energy by collision the back radiation effect becomes infinitely small. All these factors are totally ignored by the IPCC…

BMoore, whether reradiated energy of CO2 molecules travels 1 meter or thousands it doesn’t go away (1st law of thermodynamics). No energy is “lost” in collisions, but absorbed by other molecules:

Because greenhouse gas molecules radiate heat in all directions, some of it spreads downward and ultimately comes back into contact with the Earth’s surface, where it is absorbed. The temperature of the surface becomes warmer than it would be if it were heated only by direct solar heating. This supplemental heating of the Earth’s surface by the atmosphere is the natural greenhouse effect.

Engineer- Poet's picture
Engineer- Poet on Jan 26, 2018

I did, until I was effectively ordered to shut up about it.

Willem Post's picture
Willem Post on Jan 27, 2018

Addition to above comment:

Summary of Battery Capacities of Alternatives.

After electricity is generated and placed in storage, about 10% is lost due to conversion from AC to DC and charging the battery, and if that energy is discharged, another 10% is lost due to conversion from DC to AC and discharging the battery, for a round-trip loss of about 20%; round-trip loss percentages vary with the type of battery.

The battery capacity and cost is much less with increased electricity from Hydro-Quebec (Alt. 2), and increased electricity generation that is not dependent on sun and wind.

Additional build-outs of generating plants, wind, solar, bio, hydro, etc., are required to offset losses when storage systems are a part of the electric grid. Storage systems can provide services that generate revenues.

– If the battery were charged at 70% just before the start of the first lull, and it had to deliver 1.04 TWh (see table 3), the stored charge would need to be 1.04 TWh/{(0.70 – 0.25, minimum allowed) / (0.93, discharge/conversion loss)} = 2.49 TWh DC.
– If the battery were charged at 95%, the stored charge would need to be 1.04/{(0.95 – 0.25) / 0.93} = 1.6 TWh DC. That means, the battery capital costs in table 2 are minimal numbers.

NOTE: Battery capacities to cover seasonal variations would be much greater.

NOTE: If a lithium-ion battery is rated at 1 MW/4 MWh AC, it can deliver a 1 MW level of AC power for 4 hours. The stored energy is 4/0.93/0.70 = 6.14 MWh DC, because the unit would be maximally charged up to 95% and minimally discharged down to 25% to preserve life, i.e., 6.14/0.93 = 6.60 MWh AC enters the battery. The delivered 4 MWh AC depletes the battery by 4/0.93 = 4.30 MWh DC. The remaining charge, 6.14 – 4.30 = 1.84 MWh DC, stays in the battery. Usually, batteries have a maximum discharge of 50% or less.

Jesper Antonsson's picture
Jesper Antonsson on Jan 28, 2018

That boils down to politicians trying to pick winners, doesn’t it? That is slow and expensive if anything as you’re trying to beat the market at what it does best – optimizing production and investments. If you internalize externalities, get rid of subsidies and remove unnecessary regulation, the market will find a good balance. And believe me, if the US does this (and save tons of money) lots of less efficient countries will be sure to try to pick winners and the US will benefit from whatever they can come up with.

Jesper Antonsson's picture
Jesper Antonsson on Jan 28, 2018

I interpret this as an acknowledgement of two trends:
First, that market failure is expected because power prices will not be high enough to support dispatchable power generators.
Second, the government will need to subsidize dispatchable power plants to keep them online.

I think neither is true. The reason for subsides to dispatchable generators will be political in nature, not economical. People simply won’t like wild price swings, even if economically rational given an irrational amount of intermittent capacity. So the government may throw good money after bad to blunt these price swings to avoid criticism over what the RE subsidies create. Blaming market failures is a natural part of the cover-up.

Gerry Runte's picture
Gerry Runte on Jan 29, 2018

Quite the opposite. Google “real options based r&d strategy.” I’m suggesting that government approach it’s r&d investments as some private industry sectors do now.

Jesper Antonsson's picture
Jesper Antonsson on Jan 29, 2018

Obviously the government can limit its misallocations of money to some extent if they try to emulate industry, but the question is why we would want our governments to do the “D” in R&D at all? Why not leave that to private industry?

Gerry Runte's picture
Gerry Runte on Jan 30, 2018

I think it depends on where on the D spectrum the government attempts the hand off to private industry. Any government R&D agency that allows its research agenda to be driven by short term politics will screw this up. In the US, NASA and Defense seem to get it right; Department of Energy, though, has an inordinately inflated sense of its ability to do development and as a result has been mostly a failure.

Chris IJsbrandy's picture
Chris IJsbrandy on Aug 20, 2018

Interesting perspective. In this type of analysis we always assume wholesale markets and prices as-is. That is a market that operates as a merit order of production facilities, ranked at marginal (fossil) fuel cost. The logic behind this is that these marginal costs determine which facilities are switched on/off or ramped up/down at maximum 'market efficiency' conditions.

A question I have is whether this market paradigm still makes sense when renewables (at zero marginal cost) assume an ever greater market share. How 'logical' is it to keep the revenue side of a renewable investment for ever dependent on fossil fuel deployment in power plants that run less and less. That truly makes these investments self-canibalising.

What if we change wholesale market design back to a cost+ approach where power price is a simple derivative of the fixed cost of installing and maintaining renewable capacity? This would bring power prices back into the regulated domain. But so what? Is there anybody out there who believes that 'free markets' will solve this systemic transformation without major supply crises anyway?

Schalk Cloete's picture
Schalk Cloete on Aug 21, 2018

Regardless of the market design, the fact is that dispatchable electricity that can respond directly to supply/demand dynamics will always be worth much more than non-dispatchable electricity that varies with the weather. The cost of wind/solar intermittency can be shifted around to different parties by different market design, but it cannot be avoided.

These costs include:

  • Profile costs: the reduced utilization of backup dispatchable power infrastructure.
  • Grid-related costs: the more extensive transmission and distribution networks required to get wind/solar power from sites with good resources to demand centres and the lower utilization factors of these lines. 
  • Balancing costs: added grid stabilization costs due to imperfect forecasting. 
Geoff Thomas's picture
Geoff Thomas on Aug 21, 2018

There seems to be some disconnect with the Market place among some contributors to this group, - Last year, I understand in America, 17 major Coal fired plants shut down and many others turned off one or most of their Generators, plus a much smaller number of Nuclear plants. Power Engineering had a report by some mob tasked to find the cause, who Claimed that the problem was that Nuclear was (+) $60;/Megawatt Hour, coal $40;/megawatt hour and Wind $20;/megawatt hour, presumably the price the retailer pays. 

I have seen a number of interviews where representatives of the Wind Industry, discussing prices, - currently 3cents/kW at the time were talking about that next year, (2018) they had to be at 3 cents despite no more Tax Credit, about which they were guardedly optimistic

What makes nonsense of all the tables and such proving renewables must all get subsidies is that America is the home of Free Enterprise, so the retailers are competing with all other retailers, in their state and if successful in every state, so they buy the cheapest electricity they can, obviously, Wind, and they have to put aside enough money to fill in any gaps, eg with pumped hydro, gas or whatever, (maybe cheap Nuclear from a reactor not able to sell all it's output??) - whatever, that is their job, they have to balance the cheap, - that they need to stay in business, which is Wind power, or Solar, which is almost the same, with continuity.

Fortunately in America, being a big country truly blessed in Renewables, has usually Wind blowing or Sun shining most of the time people are awake, and due to modern weather forecasting, they can know where there is power available.

However, and this is a major point, they need dispatchable power,  - sometimes a climate event (or a breakdown in some old coal or nuclear plant) disrupts the smooth flow of renewables from all over the country (what the Nuclear industry to this day calls intermittent) and Oliver Sudden, power is needed poste haste. - Well no use looking to Nuclear, they can't ramp up, nor Coal, - older coal fired stations need a day or so, and even if they are already fired up, several hours to reach full capacity, so what is dispatchable, - obviously Batteries, recently in Australia a coal fired power station in Victoria lost a generator, and before even the workers at that plant knew there was a problem, a battery in South Australia, a thousand kilometres away, was filling in for it, - adjusting the field on a Wind turbine so as to effectively slow it down but providing more power, is also very quick, Hydro is normally between 2.5 minutes to 7.5, Geothermal perhaps 30 minutes, Gas somewhat longer but OK if you have the instant ones there as a buffer.

Wind, however, deserves a much closer look, partly due to the technical development with wind turbines of late, the price per megawatt has fallen over 40% in the last 4 years, and turbine size has grown enormously.

Wind turbine output is a function of wind speed and swept area, so as turbines get bigger, the generator gets bigger, in MegaWatts, the blades longer and the tower taller, and every  meter higher gives 1% more power, - Compounded.

Thus a 12 megawatt turbine on a 160 metre tower (260 metre tip height ) is a very different animal to a 1 megawatt turbine on a 60 metre tower, not only does it generate a much higher percentage of power, but up at that height there is almost always some wind, and it is much more predictable.

A point there, in the old days, we used to think a good site was 40% of rated power, although a lot of sites have subsequently been used which had publicity more than efficiency in mind.

Now however, with these huge increases in height, vailability is often 60%, with occasionally 80%, the world has changed..

So to address your side point Schalk, long before the current wind turbines on good sites, have reached retirement age, Huge new ones will be put there, generating a significant multiple of what the old ones could generate and as is now the case in Europe, the old ones will be sold for much smaller situations, - villages, single companies, Co-ops, islands, etc. or gifted to poorer parts of America to reduce their electricity burden, the time between construction and 'replacement' is based on the money that site can earn with the latest technology.

And, mark my words, sites will become sought after because there should be 200% of renewable to average usage as there will always be need for cheap power, - Aluminium Smelters, etc, 1000s of Desalination plants to try and supply the shortage of water as Climate change bites, electrification of all transport, Air conditioning for most af the country as it heats up, and also for very little cost, that insures renewables are not intermittent.

Off shore wind turbines, due significantly to Oil companies investing in wind, and sharing their offshore oil platform technology, are now almost as cheap as onshore, with no residents to complain and better wind all round.

And as for Forcing, all big companies get some sort of subsidy, Nuclear particularly but coal also, - big time, and now still! - Renewables very miserly, - the only Forcing was Nuclear, understandably by the military as it involved National Security.

To let go the dinosaurs of Coal and Nuclear will bring in a new era of plenty, thoeries about price rising balances are just that, Theories, the Realities are quite other, let Nuclear go, it's time is over, too bloody dear, and let go Coal also, it is just nudging our planet towards the hell hole of Venus with 99% carbon dioxide atmosphere and 400 degree temps.

The sun shines 24 hours every day, not intermittently, and with a bit of intelligent design, it's energy is always dispatchable


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