The solar and wind industries have long dreamt of producing energy at a price that is equal to the cost of energy sourced from fossil fuel. Now, that time seems to be getting close.
Fossil fuel losing momentum as price drops for renewables
The cost of electricity sourced from solar and wind energy has gone down dramatically over the last five years to the extent that in other countries, electricity coming from renewables is now even cheaper than those coming from conventional fossil fuel.
This trend even accelerated this year according to several utility executives. A number of companies have signed power purchase agreements for wind and solar power.
These prices are lower than that of natural gas in areas where there are lots of sunlight and wind like those in the South west and the Great Plains.
To put the price situation in perspective
A solar power plant can generate optimal energy approximately 20% to 25% of the time. That means each watt will produce about 1.75 to 2.19 kW-hrs of electricity annually.
A utility scale solar plant with a 10% ROI will be able to produce electricity for 9.3 cents to 11.7 cents per kW-hr without subsidy. That figure is very close to the average price in the U.S. which is about 9.6%.
The fundamental reason of the decline of conventional fossil fuel in its role in electricity and renewable energy is economics. As prices of solar and wind energy continues to drop, the world can expect to see more rapid growth in renewables, and a decline in the prominence of fossil fuels.
Generous subsidies have also caused the lowering of solar and wind energy prices. Although these subsidies could expire or diminished, alternative energy can still compete effectively without them.
Last spring, Austin Energy of Texas signed a contract that will last for 20 years from a solar farm offering electricity at lower than 5 cents per kilowatt-hour.
In Oklahoma, the Grand River Dam Authority approved a new contract to purchase electricity from a new wind farm that is expected to be finished next year. This contract, says Grand River, will enable its customer to save about $50 million from the project.
American Electric Power, another utility company in Oklahoma also ended up tripling its wind power generation.
“Wind was on sale — it was a Blue Light Special,” says Jay Godfrey, managing director of renewable energy for American Electric Power. He stated that Oklahoma is not like many states. It does not require utilities to buy power from renewable sources.
“We were doing it because it made sense for our ratepayers,” he adds.
Based on the study made by Lazard, an investment banking firm, the lowest price of utility-scale solar energy is 5.6 cents per kilowatt-hour, while the lowest price of wind is 1.4 cents per kilowatt-hour.
Fossil fuels by comparison are more per kilowatt hour. The lowest price of natural gas, in comparison, is 6.1 cents per kilowatt-hour, and coal’s lowest price is 6.6 cents.
Without any subsidies the lowest prices of solar and wind energy is 7.2 cents and 3.7 cents respectively.
“It is really quite notable, when compared to where we were just five years ago, to see the decline in the cost of these technologies,” says Jonathan Mir, a managing director at Lazard.
Lazard has been in the business of studying and comparing the economics of power generation technologies of both renewables and fossil fuels since 2008.
