Arguments about the cost of renewable energy integration

Amory Lovins, the founder of the Rocky Mountain Institute and author of Natural Capitalism, was on a Greentech Media podcast recently. At stake in the podcast was a conversation about what the real cost of solar and wind power actually is. This comes on the heals of a study out of the Brookings Institution that argued that “levelized cost” wasn’t the correct way of assessing the cost of renewables.

Levelized cost analyzes capital cost plus operational cost over the lifetime of the equipment. Study author Charles Frank argued that cost-benefit analysis was more correct because it includes other costs like what it costs to generate power when renewable energy isn’t available, like when the sun’s not shining as well as the value of carbon emissions avoided.

What emerged were lots of arguments about the actual figures Charles Frank used in his paper, with everything from the capacity factors he cites, time to build estimates for new plants, and the cost of renewables cited under dispute. The Economist does a good job of highlighting some of the problems in the figures that came out.

While there likely are political motivations on both sides here, one of the potential shifts in thinking could occur if, as Lovins references in the podcast, the amount of bulk energy storage required on the grid is actually lower than anticipated. I’ve heard this over the past few years from various startups bringing renewable energy technologies to the grid—that intermittency may be a more manageable problem than anticipated. Utilities may actually need less energy storage than anticipated, which lowers the per megawatt cost of renewable energy integration. Only time and experience with deployment will answer this question.

“The discussion of grid integration costs is very asymmetrical. There are integration costs of adding anything to the grid,” notes Lovins. For example, reserve margin at a thermal power plant has a cost. And perhaps this is where the rub is. We have a tendency to delve deeply into all of the costs associated with renewables while not focusing on the grid integration costs associated with fossil fuels. I would add to this conversation that we don’t assess the historical subsidies for fossil fuels that have contributed to their pricing today. Were we to give renewables a 30 or 40 year runway of subsides to help built out infrastructure for renewable energy we might wind up with even lower renewables costs.

A couple years ago I looked at the analysis done by Roger Bezdek, the former director of energy research at the Department of Energy that examined the last 60 years of federal energy incentives. Of the $837 billion in energy subsidies doled out since 1950, oil picked up $369 billion with natural gas and coal soaking up another $225 billion. Renewables scored just 9 percent or $74 billion. Decades of tax incentives, subsidies, infrastructure investments impact the current day price of any power source.

But the politics and issues of historical fairness aside, this question of how to properly account for the true cost of energy is important. Data is as good as the assumptions that go into the models and the formulas that get us to a final digestible cost per unit of energy figure. And I think this conversation about how we get these figures and account for them is healthy. Often we accept data as fact because there’s a number attached, rather than thinking of it as an estimate with assumptions built in. And it cuts both ways. The true cost of fossil fuels isn’t the spot price of natural gas just as the true cost of solar isn’t merely the capital cost of a solar panel.

What isn’t up for the debate is the reality that solar and wind power continue to decline in cost because the costs of the equipment itself–panels plus storage. Lovins also references the fact that many present day analyses of renewables don’t take into account R&D improvements from the private sector which lower renewables costs long term. Renewable energy pricing is decreasing and that means more corporate interest in an expanding market. In the long run that’s almost certainly going to further drive down the cost of clean power, no matter what model you’re using.