Cleantech Market Intelligence
As Race Tightens, Renewable Energy Costs Fall Quickly
The most common metric used to compare the costs of different power generation technologies is levelized cost of energy (LCOE). LCOE is defined as the average cost per unit of electricity over the life of a project, which is driven primarily by capital costs, operating costs, financing, and capacity factor (power output relative to the installed capacity). All of these factors vary by technology and are continually changing. The chart below shows a snapshot of LCOE for various technologies estimated by Navigant Consulting as of late 2013. Note that each estimate provided represents an average of a wide range of values, given the many variables such as plant size, age, and location that exist within each technology.
U.S. Levelized Cost of Energy
(Source: Navigant Consulting)
PV Solar Cost Continues Its Precipitous Decline
This chart looked much different 5 years ago, and it will likely be very different in another 5 years. Photovoltaic (PV) solar and wind in particular have seen dramatic cost reductions in recent years. For example, average selling prices for PV solar modules have dropped from $3.50 per watt in 2007 to a current price of below $1.00 per watt for large customers. In addition to declining costs, PV solar has been experiencing improved performance. Different technologies will also have varying impacts on overall system output. In warmer climates, for example, thin-film modules will generally produce higher capacity factors compared to crystalline silicon. Similarly, tracking devices – which allow solar panels to follow the sun – improve the capacity factor of a PV system. Over the past couple of years, single-axis tracking systems have seen an increase in market share due to lower prices and increased reliability. While most of the adoption is currently in western states, where the performance benefit of tracking is the greatest, we expect to see more tracking systems across the entire market as prices continue to decline and reliability increases. For example, Public Service Company of New Mexico recently filed for approval of 23 MW to be built in 2014 at a contracted price of just $2.03 per installed watt.
Wind Cost Resumes Its Downward Trend
The LCOE of wind power has experienced a similar decline since its modern day peak in 2009. Average power purchase agreement prices for wind plants in the interior (windy) part of the United States were around $50 per MWh (in 2013 dollars) that year, compared to an average of $23 per MWh in 2013. The newest generation of wind turbines have capacity factors that are approximately 10 percentage points higher (i.e., 45% instead of 35%) compared to just 5 years ago. With the new large rotor turbines yet to be integrated into the U.S. fleet, we can expect continued improvements in the years ahead, with many projects achieving capacity of factors above 50%.
Mature technologies are also able to secure more favorable financing. This is due to the lower perceived risk by financial providers, which improves the price competitiveness of these projects. Both wind and solar are now becoming mainstream technologies and will ultimately become cost-competitive without the need for incentives. As the newer renewable technologies mature, we expect them to benefit from more attractive financing terms, as well.
Readers should be cautioned that LCOE is only part of the story. The short-term variability of renewables imposes some cost, especially at higher penetrations. Resources and projects may require new or expanded transmission investment, which is typically not included in general LCOE estimates.
For those interested in hearing a lively discussion on this subject, representatives from Navigant Consulting, the Lawrence Berkeley National Laboratory, and the National Renewable Energy Laboratory will participate in a panel session covering LCOE forecasts for renewable energy and grid parity projections as part of a renewable energy workshop on May 5, 2014 at the AWEA WINDPOWER 2014 conference in Las Vegas. For more information, click here.
Notes: The chart assumes federal incentives only (e.g., 30% investment tax credit [ITC] for solar and accelerated depreciation). PV is fixed axis. Concentrated solar power (CSP) assumes trough technology. Natural gas price of $3.00 per MMBtu. Geothermal assumes installed cost of $5 per watt, capacity factor of 80%, and ITC of 10%. Wind assumes 35% net capacity factor with no production tax credit (PTC)/ITC.
Bruce Hamilton is a director in the Energy Practice of Navigant Consulting.