Solar and Wind Power So Cheap They’re Outgrowing Subsidies

What are the chances that a wind and solar power project might eventually pay off if it’s developed at all? Ben Swann was doubtful long ago. His prediction in 2012, when wind and solar combined together received more than $100 billion in the U.S. state of California’s total investment in energy was almost as water-proof as the Secret Service’s natural-gas cutter. In 2013, wind and solar projects comprised just over 2 percent of the $254 billion in spending on energy. At least they’re not letting go.

“I don’t think the American public has caught on to what we are seeing,” Swann says. “People say, ‘oh well the technology is pretty cheap,’ but what about the costs? They are so low.”
Americans have been signing long leases for these remote natural-gas power plants. In South Carolina, Orrick, Herrington & Sutcliffe LLP’s Westwood Group released a study last month, showing that just two wind power projects out of 19 locations had contracted for an estimated $71.3 million in electric bills.

The logic for investing in such projects was simple: Build these smaller, cheaper facilities, and customers would get ample local power, at a time when consumers are consuming more and weather-related inflation is driving up their power bills. When all is said and done, the payments could make the project financially viable after all.

A far less clear-cut scenario was unfolding in Michigan, where Renaissance Renewable Energy’s 171-megawatt photovoltaic farm was scheduled to begin operations in 2016. Still, the cost of solar has doubled over the past five years to just $8.78 per watt last year and nearly quadrupled to $37.36 in 2015, according to energy data provider GTM Research. At peak output, solar power could produce nearly as much as conventional power with a quarter cheaper than wind.

“What goes up, comes down,” he says. “Wind and solar tend to move faster and faster. They’re inefficient. They’re not always cheap, but they’ve got a much better place to go.”
That place is nowhere as remote as the Flint, Michigan, wind farm that Renaissance is building, which is 80 miles northwest of there.

The Flint wind farm will produce enough electricity to power 2,600 homes. The parkland not far from the facility has about 450 wind turbines, weighing about 13,000 tons. Typical wind turbines are about 11 feet high and 1,500 tons. The top blade is made of metal — rare in Germany and obsolete in the U.S. because U.S. wind turbines are typically made of cast iron.
A new terminal will allow Renaissance to direct the energy into Flint grid operators, who are better equipped to handle mass-transit movements. That’ll give domestic power traders more power to sell and work with for lower prices.

“We have to roll the dice with them,” says Alan McCormick, president of Western Regional Wind Operations and a veteran negotiator who oversaw the contract with FirstEnergy Corp. of Cincinnati and the Energy West Group, a Virginia firm that had received $3.2 billion in residential, commercial and industrial sales. “Anything we try and resolve to this point, it’s going to cost us more time,” McCormick says.

The U.S. could get by with cheaper, single-digit-sized wind projects, because while they’re more efficient, they don’t generate all that much power. FirstEnergy’s wind plant produced only about 2 percent more electricity this year in Michigan compared with 2013. In other words, even when it gets built up to its maximum capacity, wind turbines aren’t the star they were a few years ago.

In South Carolina, a $150 million upgrade of Sempra Energy’s Bonita 13, which delivers power to cities throughout the state, is a test case for energy economics. Utilities in the state are looking into storing local power to prevent revenue leakage.

South Carolina power companies had estimated the Bonita 13 wind farm would be financially viable in 2012, but production didn’t start until March. The upgrades made the plant more cost-effective, saving the companies from having to build new ones to go up.

Renewable investors are cautiously optimistic. Bob Gleason, chief executive officer of Clean Power Finance LLC, says the market for projects such as Bonita 13 is “just starting.” And Christine Christiansen, global head of renewable energy at Morgan Stanley, has strong feelings about the future of solar and wind. “The more projects that we see in place with reduced costs, the more we can see a sustainable long-term, cost-led growth,” she says.

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