In this post I present “back of envelope” style calculations on the capital costs of renewables globally since 1998 and deduce that roughly $1.3 trillion has been spent installing wind turbines and solar panels. Is this a lot of money? Is it a wise investment? What else may we have we got for our money?
There are different ways to view this. For example UK annual GDP is roughly double this sum and in that perspective it is not a huge amount for the world to spend over 15 years. Some would argue that we should be spending a lot more. Another perspective is that the same money would buy 50 Hinkley Point style pressurised water reactors. That would add 163 GW to global generating capacity, roughly three times the UK total generating needs.
We hear a lot about the plummeting cost of renewables and escalating costs of nuclear power. Looking just at capacity installation costs, nuclear comes in at $8000 / kW and wind at around $2000 / kW. But these figures need to be adjusted for load capacity factors (nuclear 0.9, wind 0.17) and for the longevity of the installations (nuclear 50 years, wind 20 years). Applying these adjustments wind works out at 3 times and solar at 10 times the cost of installing nuclear power.
Figure 1 The binge in renewables investments began in 2008, the year of record high energy prices, the biggest financial crash in living memory and passing of the Climate Change Act in the UK. Global investment in solar now exceeds wind and combined they amount to $1.3 trillion.
Getting a precise handle on global renewables investments is a huge task. There are large variations in costs from project to project within and between countries. Here I use median cost estimates for wind published by the US National Renewable Energy Laboratory and for solar by the US Department of Energy (Figure 2). These are costs applicable to the USA and applying these globally will add bias.
Figure 2 Capacity installation cost curves for wind and solar in the USA. Solar has declined rapidly, perhaps with a penalty to the quality of panels produced, but is still almost double the cost of wind where costs have been stable / slowly rising. A move offshore will push the future cost of wind upwards.
For annual capacity additions I have used BP 2014 data. BP publishes annual installed capacity figures and hence additions are calculated by the difference in installed capacity from one year to the next.
Wind Capacity Growth and Investment
Figure 3 Note that each of the stacked column charts uses the same colour three times, so care is required reading the key. Global wind capacity is dominated by China and the USA with Germany coming a poor third. The plunge in wind capacity additions in 2013 is down exclusively to the USA where a change in tax subsidy “killed” the industry over night.
Figure 4 Global investment in wind power began to gather pace in 2005 and took off in 2008 with a near term peak of $90 billion in 2012. It remains to be seen if the wind binge is past or whether we will see resumed growth.
Solar Capacity Growth and Investment
Figure 5 Global solar capacity is dominated by Germany, China, Italy, Japan and the USA. Note how there is an erratic pattern of capacity growth. Some countries show large single year growth: Spain in 2008; The Czech Republic 2010; Italy in 2011; China and Japan in 2013. German growth slowing in 2013, perhaps down to competition for panels from China and Japan. This erratic behaviour perhaps correlates with the coming and going of subsidies.
Figure 6 The exponential rise in solar capacity (Figure 5) has been spurred by the fall in costs to the extent that investment levels have dropped. The peak investment year was 2011 with over $160 billion spent, a significant part of that in Italy.
The proposed Hinkley Point nuclear power station to be built in England has the ridiculous price tag of $26 billon struck in a deal that is doubtfully in the best interests of UK citizens. The plant is rated at 3.26 GW that it will likely churn out electricity 24/7 for 90% of the time, providing power on demand whenever it is needed for 50 years or more. The $1.3 trillion spent on solar wind so far would have bought 50 Hinkleys. What would have been the better deal?
Figure 7 The power rating normalised cost of building a nuclear power station is much higher than the cost of installing wind and solar power. But wind and solar power only operate at small fractions of their rated capacity and have much lower life expectancy than nuclear power stations. Factoring these variables in shows that installation costs of solar is more than 10 times nuclear and wind is more than 3 times the nuclear cost. Of course there are a host of other considerations to take into account, but these pros and cons are weighted for and against the various technologies. Capacity factors for wind and solar are based on Germany in 2013.
Looking just at capital costs of installation is of course a gross simplification of the overall cost of power delivery. Nuclear needs to carry the additional cost of fuel, fuel enrichment, decommissioning and waste storage. Renewables, especially off shore wind, will also have high decommissioning costs and must also carry the significant costs of load balancing, which are simply being ignored in most calculations today, and the building of new power lines and inter connectors. There is also a cost linked to dependability. I believe we may soon discover that a lack of dependability in our electricity supplies, that results in blackouts, will carry a very high cost for society and the economy.
by Euan Mearns
Eg. solar capacity factor in Germany (not the best place for solar really) is 17%, and not 9.5 as stated.
Also for wind, most places have a capacity factor above 20%, but this is very varied.
All recently built nuclear plants had a huge cost overrun of 50-100%.
Can we store the nuclear waste in your cellar? Nuclear waste is not solved anywhere in the world, there are only temporary solutions.
And what about fuel availability? Uranium production is peaking. Yeah, I know thorium, but that is not working comercially anywhere yet and has its own problems (otherwise it would be everywhere already).
Wind turbines are also expected to last over 25 years and since half of the infrastructure wouldn't need to be replaced - they could easily be upgraded at low cost when they do become economically nonviable.
Solar and wind have not proven to be self-sustaining without enormous taxpayer subsidies. It's no coincidence that the heads of renewable energy firms quit investing in infrastructure when they know they can't rely on the taxpayer footing the bill.
Also, I don't buy man-made climate change so I have no problem with oil and coal. The cycles of the sun and volcanoes dictate the weather, primarily, and volcanoes, specifically, determine how much of this "deadly" carbon dioxide is in the atmosphere. Sorry to strike a blow to the human ego, but our impact is close to nil compared to non-human factors.
This was a very insightful article. Thanks to the author. I wish it would have included fossil fuel cost/capacity, etc., to compare.
The elephant in the room is "cost of capital" which he has ignored completely - he has assumed it is zero. Typically this is going to be in the region of 5-7% per annum. Lets assume 5% just because it is a round number.
Now you need a spreadsheet to work out the annual repayment costs so they get to zero at the end of year 20 for wind and year 50 for nuclear. But it is not difficult to do this. You find wind costs per year are $170 / kW and nuclear are $440 / kW.
Now you factor in the real load factor (Euan's second big mistake) for wind and nuclear. New wind installations are rarely less than 35% so lets use this, and keep nuclear at 90% as Euan does.
So the costs per year per kW including load factor are now wind are now $485 / year / kW, and for nuclear are $489 / year / kW.
We haven't yet factored in the cost of nuclear fuel and have included nothing for decommissioning which is probably going to be very low for wind and something like 25-35% of the initial cost for nuclear (but we can accumulate this over his 50 years).
In short it is not difficult to see that a more accurate costing shows wind is cheaper than nuclear on a "slightly better than back of the envelope" basis.
The only factor not in the calculations is the variability of wind. Let's defer talking about this.
Solar calculations are likely to work out as slightly more expensive than nuclear. Euan should be allowing 25 years lifetime for solar, not 20, and of course his load factor is stupidly low for anywhere with much sun (which excludes Germany which is the last place you would put solar panels if you weren't rabidly green!)
Now for the variability. If you have both wind and solar installed then they are to a large degree complementary - wind is highest in winter and overnight and clearly solar is best in summer and only generates during the day (usually shaving the daytime peak). So if you have both then you probably have to use fill-in generation less than 50% of the time averaged over a year. Gas generation fits the bill nicely as it can be designed to ramp up and down with fast response, has low capital costs but higher fuel costs, so it matters less if the load factor is deliberately kept at just less than 50%. But know we are getting more sophisticated in the analysis and it is no longer back of the envelope.
Wind has nearly 40% capacity factor and Solar has 20% capacity factor.
The author also criticizes Nuclear power with its high cost.
Most of the nuclear reactors are built in China, Russia, India where the cost is $4,000 / KW. Where its being built is of importance.
Without subsidies and mandates this nonsense wouldn't be happening in the US. And yes it takes both sides of the isle, the Crony Capitalists, Crony Socialists and the latest addition to the mix Green Robber Barons and Eco Socialists. By the way, check out how the renewable energy policies have worked out in Europe in regards to the recession. Spain solar has crashed, Cap and Trade market is in the tank, Germany's offshore wind debacle, UK canceling all of it onshore wind projects, etc.
The real sluts are the rent seeking grant chasing parasites. The US Energy Information Agency is the go to government source for unbiased data. Here is a listing of Federal subsidies for electric power by source, fiscal 2010, dollars per Megawatt. Oil and Gas $0.64, Hydropower $0.82, Coal $0.64, Nuclear $3.14, SOLAR $775.64, WIND $56.29. You don’t need a Harvard MBA that there is something amiss here.
Without subsidies and mandates this nonsense wouldn't be happening in the US. And yes it takes both sides of the isle, the Crony Capitalists, Crony Socialists and the latest addition to the mix Green Robber Barons. By the way, check out how the renewable energy policies have worked out in Europe in regards to the recession. Spain solar has crashed, Cap and Trade market is in the tank, Germany's offshore wind debacle, UK canceling all of it onshore wind projects, etc.
"The reality remains that, according to these statistics, the capacity factor of wind and PV in Germany is ummmm…pretty awful
Solar PV capacity GW 35.651
Solar PV production TWh 29.7
Capacity Factor 9.5%
Wind capacity GW 32.513
Wind production TWh 47.2
Capacity Factor 16.6%"
Leaving out the finance costs is an omission worthy of criticism, but hey, I am a geologist scribbling on the back of an envelope. Being UK based, I'm not much interested in what nuclear power costs in India. But I believe we could build it a lot cheaper.