Not satisfied with the mere claim that solar and wind are reaching parity with the costs of conventional energy technologies, green enthusiasts are upping the ante claiming that, as one UBS bank analyst recently put it, by “2030, the cost [of solar] could be so near to zero it will effectively be free.”
But no amount of research or torturing of reality, however, will lead to that result. Both physics and history offer instructive lessons.
The nuclear industry has been plagued by its own “too cheap to meter” trope ever since 1954 when Lewis Strauss, the first chairman of the Atomic Energy Commission, originated that phrase in a lecture extolling the unbounded potential of fission energy. Nuclear did proceed to grow from under 1% of U.S. electricity in 1968 to 20% by 1988, where it’s remained ever since. For all its manifold advantages, the inherently high capital costs of that technology remain the obvious challenge.
“For all its manifold advantages, the inherently high capital costs of [nuclear technology] remain the obvious challenge.”
As for solar electricity, today it supplies 1% of U.S. electricity. Of course it’s possible that share will yet grow to match, say, nuclear—not least because of policymakers’ zealous embrace of subsidies and mandates. While that is, as they say, not nothing, it is far from everything. More to the point, the central claim that such an outcome is inevitable not because of subsidies but because solar, and wind, are already cheap is just not true.
The real underlying engineering-centric economics are only visible if you strip out subsidies, hyperbole, regulatory subterfuge, and fake prices that emerge from mandates. Fortunately, both the Department of Energy and SEC filings of public corporations provide plenty of reliable data about the core engineering costs of the hardware needed to produce energy, whether solar panels, wind turbines, or drilling rigs. Here’s what they show:
Buy $1 million worth of solar panels and, over a 30-year operating period, they will produce about 25 million kilowatt-hours (kWh). Never mind what one is paid for those kWh, whether directly or indirectly through tax and regulatory jiggering, or legal mandates, that’s the quantity of energy one gets. Period.
By comparison, $1 million worth of a modern wind turbine will produce 50 million kWh over the same 30 years. That basic fact explains why wind today contributes about 600% more to the grid than does solar; wind power is a lot cheaper.
Alternatively, purchase $1 million worth of a shale rig and, over those same 30 years, that capital will produce enough natural gas to generate 400 million kWh. The 400 is not a typo. That same $1 million of hardware producing natural gas yields 10 and 20-fold more ‘product’ (kWh) than either wind or solar respectively. And this basic fact explains why, over the past decade, private investment in shale gas has added 500% more energy to America than government subsidized wind and solar combined.
“Private investment in shale gas has added 500% more energy to America than government subsidized wind and solar combined.”
Of course, solar and wind costs will continue to decline. But there is simply nothing in the underlying physics of either of those technologies that points to the possibility of anything like a 10-fold reduction in capital costs, never mind getting to “effectively free.”
The cognoscenti will note that the above cost comparisons do not include the capital cost of equipment (a gas turbine) to convert natural gas into grid-useful kilowatt-hours. Nor do the calculations incorporate the capital cost of equipment (batteries) that converts episodic solar or wind output into grid-useful 24x7 electricity. Including those costs, however, further disadvantages solar and wind. The capital cost per kilowatt for batteries is several-fold greater than for a gas turbine. And while there are aspirations for far cheaper batteries, there’s no known physics path for them to become several-fold cheaper.
At present, wind and solar technologies receive subsidies that amount to between 45% and 140% of their capital costs. (Similar subsidies exist in much of Europe.) But with solar and wind supplying a combined total of only about 7% of the nation’s electricity, such underlying cost burdens have so far been disguised in the labyrinth of mandates and subsidies, and also masked by—in effect ‘borrowed’ from—the savings from the last decade’s radical declines in the cost of natural gas and coal which together supply 70% of U.S. electricity. Aspirations for radically increasing solar and wind electricity will necessarily require ramping up subsidies to the point they will ultimately become visible.
That scenario has played out in Germany and Britain, both far further down the green path, leading to radically higher electricity prices there — 200% to 300% higher than in America. The green subsidy effect was also visible in Ontario, Canada. A punitive rise in electric rates over the past decade, created by the Ontario Liberal Party’s pro-green subsidies, contributed directly to an epic ballot-box defeat for the Liberals earlier this year, ending 15 years in power. A key feature of the opposition’s winning strategy? Calling for the reversal of green subsidies.
In due course, the same political realities will become as visible and painful in America too. It is far more likely that we’ll see solar electricity too expensive to tolerate than too cheap to meter.
Mark P. Mills is a senior fellow at the Manhattan Institute, a McCormick School of Engineering Faculty Fellow at Northwestern University, and author of Work in the Age of Robots, just published by Encounter Books.
Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.
© Photo by iStock