(c) 2016 Donald Swift-Hook
Secretary of WREN
Visiting Professor Kingston University, London
Woking, Surrey GU21 4XX, United Kingdom
Now that renewables are cheaper than any other plant in many countries, Governments are eliminating subsidies and then there is no commercial incentive to turn to renewables to reduce emissions or to save our planet. Being capital intensive, renewables are not commercially appropriate for increasing peak capacity and their commercial justification is that they SAVE FUEL.
Renewables are often seen as antipathetic to fossil fuels but a little reflection will suggest that those countries which produce/use the most fuel will have the greatest interest in saving or replacing fuel, so they should be the ones with the greatest interest in renewables. This is confirmed by noting that China, the USA and India, who between them produce over 70% of the world’s coal, generate more than half of the world’s wind power.
An implication is that storing electricity from renewables is not economic. Storage of energy on a power system works commercially on the arbitrage between buying cheap electricity [typically in the middle of the night] and selling it when electricity is dear [during the day-time or evening]. The commercial basis of renewables is saving fuel and the round-trip losses from putting the electricity generated into store and taking it out again loses some of the fuel already saved. There is no arbitrage between fuel costs around the clock, so storage cannot be commercially justified
The renewable energy scene is changing rapidly. I have specialised in wind power and I used to explain to my students half a dozen or so years ago that wind was 10 times as cheap as photovoltaics, which was why there was 10 times as much of it. This meant that as much money was being spent on solar power as on wind but wind was almost entirely large-scale megawatt-sized industrial installations while solar was almost entirely domestic and on the rooftops of buildings see figure 1
I explained that wind was growing rapidly, doubling every three years but that solar was growing even more rapidly doubling every two years.
Figure 1. A typical domestic installation of photovoltaic solar panels .
As a snapshot, half a dozen or so years ago all those things were true. Renewables represented only a few per cent of electrical power generation but the position was changing fast. For instance, at the 2014 WREC at Kingston University in London I was able to announce that wind power generating capacity worldwide had just overtaken nuclear. Wind power was still a lot cheaper than solar but both prices were falling rapidly.
The situation was changing month by month and today that position is reversed: solar power is cheaper than wind. Also the majority of solar installations are now on the industrial scale, see Figure 2 for example.
Figure 2. Most solar pv capacity is now on the industrial scale. This is the 50 MW Shotwick Solar Park on Deeside in North Wales.
- POWER AUCTIONS
It used to be difficult to know the true costs of renewable power installations or the electricity they generate. The prices that different manufacturers would quote for their wind turbines, for example, were regarded as highly confidential commercial information.
In many countries, power auctions are now held annually in which developers offer to provide a certain amount of capacity at a specific price. Bids are listed from the cheapest to the most expensive and distribution companies select the lowest-cost proposals available until reaching their target capacity.
These contractual prices are publicly announced and so there can be no argument over what the generating costs are for each tranche of power.
In 2016 the prices of electricity from solar power farms bid in these auctions has dropped dramatically, see Figure 3.
Figure 3. The prices for pv solar power in power auctions around the world have fallen dramatically in 2016.
In March 2016, an auction in Mexico awarded solar contracts for 3.55c/kWh, while only two months later a solar project in Dubai sold for 2.99 c/kWh. This was closely followed in August 2016 when Chile’s largest ever electrical power auction, awarding contracts for several GW of plant [to provide 12,430 GWh/year], was led by an even lower [by 3%] solar bid by a Spanish developer of 2.91c/kWh.
It needs to be emphasised that these prices are the best bid in each case for relatively modest installations [the Tarapaca Solar Farm in the Atacama Desert is 120 MW] and they do not represent the average prices bid and accepted at each auction. However they do indicate clearly the way costs are moving and the average price in Chile this year was 40% lower than last year’s auction.
Renewable-energy developers won more than half the contracts but the lowest price for wind power awarded in the auction was 3.81c/kWh. Power from natural gas sold for 4.7c/kWh, coal for 5.7c/kWh, hydroelectricity for 6.0c/kWh and geothermal for 6.6c/kWh, as shown in Fig 4.
These solar pv prices are for large multi-megawatt solar farms and virtually all new solar today is on the industrial scale like wind. power.
Figure 4. The best prices bid in Chile in August 2016 for different types of generation. Renewables are economic in their own right without any subsidies.
This trend continued in September 2016 when a joint Chinese/Japanese consortium put in a bid to build a large solar panel farm near Abu Dhabi for a significantly [17%] lower price of 2.4c/kWh.
Where renewables are commercially viable in their own right without subsidies, it is inevitable that Governments will stop subsidising them and that is happening as rapidly as prices are falling.
For example, the solar panels which I installed on the roof of my house in 2013 [see Figure 1] enjoy a Feed-In-Tariff [FIT] of £0.23/kWh. If I had installed them a year earlier, I would be getting double that amount, although they would, of course, have cost me twice as much then. If I had installed them one month later I would only be getting £0.16/kWh and if I put them in today, the subsidy has virtually disappeared.
With the massive cost reductions that are revealed by the auctions being held around the world, renewables are commercially competitive in their own right without any subsidies, so most Governments are reducing their subsidies significantly or, in many cases, eliminating them altogether.
Without subsidies there is no direct commercial
incentive for a generating company to avoid global warming or save our planet. Renewable generation will stand on its own commercial feet and cutting down emissions will become a fortuitous side-effect, just as it is for nuclear power.
When there are no commercial incentives for developers to cut their emissions or to save our planet, they will turn to renewables simply to make the greatest profits.
4 STOP THE LIGHTS GOING OUT
One obvious reason for installing new power plant is to provide more generating capacity.
For 100 years, electricity consumption has been taken as equating with a country’s well-being and standard of living. Lenin famously said, “Communism is Soviet power plus the electrification of the whole country.” How times change!
10 years ago peak demand in the UK was more than 60 GW but by 2015 it had fallen to 52.7 GW. The correlation with standard of living obviously no longer applies.
To maintain a secure supply, spare capacity is needed and it used to be that 23% was sufficient spare to ensure that the UK power system failed only a few times in a century due to insufficient capacity.
In 2014 Ofgem were quoted (1) as saying that customers faced “a one-in-31 chance of a blackout in the event of a harsh winter in 2015-16 combined with little wind to propel turbines”, which is consistent with the aforementioned “a few times in a century”.
In 2016 installed capacity in the UK was 81 GW with 54% standing spare over and above that needed to meet peak demand (2). Evidently there is far more spare capacity than is required to meet the standard of reliability aimed at in the UK power system.
If more peak capacity were required, however, it should be cheap (i.e. low capital cost) generating plant that need not be particularly efficient because it would only need to operate for brief periods of peak demand.
Renewables and nuclear costs are all largely capital with little or no fuel costs and those costly options are the last type of peaking power plant needed to stop the lights going out.
In fact wind power does contribute a fraction of its capacity to firm power on a power system, the fraction being the load factor, as I first showed analytically (3). Indeed, the capacity credit for any type of power plant is its load factor during the peak load periods. For wind this is well above 30% in the UK.
However, there is little commercial justification for installing renewables (or nuclear) to provide peak generating capacity “to stop the lights going out”. The fact that they – or at least wind farms – may do so is a fortuitous side effect.
5 SAVING FUEL
What renewables (and nuclear) do commercially is to save or replace fuel.
That is something which almost all countries want to do.
The UK, for instance, is running out of North Sea oil and gas so it has to import fuel. It is keen to save the cost of imports and improve its balance of payments by generating its own power from renewables.
Figure 5 China, USA and India lead the way in burning and exporting coal.
Figure 6 China, USA and India lead the way in installing wind power to save coal.
On the other hand, those countries which produce and export fuel have an interest in extending their reserves and increasing their sales.
Figure 5 shows that China, America and India between theme burn and export nearly three-quarters of the world’s coal. It is not surprising therefore to see from Figure 6 that they have installed well over half of the world’s wind farms.
Whether a country has a lot or a little fuel, it has a commercial interest in saving or replacing it and therefore in renewables.
6 STORING FUEL SAVERS
The storage of electrical energy on a power system is nearly as old as power systems themselves and the practice is fairly commonplace. Some 5% of all power generated in the EU is from plant associated with pumped water storage.
Many different types of storage have been proposed over the years (5) but pumped water is the only system in widespread use today. (Many systems for frequency control and balancing involve the physical storage of relatively small amounts of electricity e.g. capacitors for a few cycles or batteries for a few minutes of outage locally but it is just as misleading to refer to these as systems for energy storage as it would be to designate my mobile phone as such.)
The commercial justification for electrical energy storage on a power system is in the arbitrage between buying cheap electrical power at night and selling it when it is dearer during the day (6). If the difference is sufficient to pay for the plant required and for the round trip losses in putting the electricity into store and taking it out again, storage can be economic.
When the commercial justification for generating electricity in the first place is for saving fuel, it is not economic to put that electricity into storage in the hope of taking it out at a more financially advantageous time.
There are losses involved of typically 10% or 20% – pumping losses for pumped water, internal resistive losses for a battery, etc – and there are similar losses when sending the power out again. These losses represent a loss of the fuel that has been saved in the first place and there can be no arbitrage on that fuel, because, unlike electricity, fuel in the middle of the night costs the same as fuel during the middle of the day or at any other time.
So storing electricity generated for fuel saving is not economic i.e storing renewables is not economic.
Public auctions show that generating costs of renewables are now lower than other types of generation. Solar power is being generated at half the price of power from coal and three-quarters of the price of wind power, while wind is 20% cheaper than gas.
Governments are consequently reducing and removing subsides so there are no longer commercial incentives to reduce emissions. Developers switch to renewables only seeking profits; saving our planet is a fortuitous side-effect.
When extra generating capacity is needed “to stop the lights going out”, cheap peaking plant is required and capital intensive renewables are the last to be needed for that purpose. There seems little need for such plant in the UK with 81 GW of capacity installed to meet a peak demand of 52,7GW.
The commercial justification for renewables is to save and replace fuel, although wind power does contribute to firm power capacity. Storing electricity generated for fuel saving is not economic, so storing renewables is not economic.
(1) Rankin, J. The Guardian newspaper 28 June 2014
(2) Digest of UK Energy Statistics. UK Govt Department for Business, Energy and Industrial Strategy, 2016.
(3) Swift-Hook, D. T. “Firm power from the wind” Wind Energy Conversion, Ed. J. M. Galt, (MEP : London) p. 33, 1987
(4) Swift-Hook, D.T., Renewables are to save fuel. Renewable Energy in the Service of Mankind, Vol. II, p. 301-310, 2015
(5) Ter-Gazarian, A., Energy storage for power systems Vol. 6 in Swift hook DT editor IEE Energy Series. London: Peter Peregrinus, 1994
(6) Swift-Hook, D.T., Grid-connected intermittent renewables are the last to be stored, Renewable Energy, Vol. 35, p.1967, 2010