BLOG 9- 30 REASONS WHY RENEWABLE ENERGIES (PHOTOVOTLAIC AND WIND) DON’T ALWAYS LOWER ELECTRICITY PRICES

Here are some reasons why renewable energy has not yet led to a decrease in energy prices and has, in some cases, contributed to higher electricity prices:

1. Initial Investment Costs:

• • All types of projects have initial investments, maintenance or operational costs and the so-called revamping costs. The latter is normally initially not considered but contributes significantly to the power generation of the asset and thus to the projects net present value and return on investment. If these costs have not been amortized and return on investment capitalized for the asset owner, allocating lower costs of electricity is not possible.
  • In effect, utility scale projects often calculate their expected electricity prices based on material, components and construction prices below actuals, solar radiation levels above measured, and amortizations times that do not consider revamping, and actual maintenance costs.

2. Infrastructure Upgrades:

• • Integrating renewable energy into the existing grid often requires significant upgrades to infrastructure, including transmission lines and energy storage systems.
  • In effect, when the energy price of the investment is calculated, it is done as a stand-alone asset. Grid and transmission line construction costs, and maintenance costs are not added to the formula. Often, these costs are paid by the electricity user or buyer in a separate stream of bills making it completely untransparent. In effect, adding the grid and transmission line costs to the investment is not only complex, but also likely inaccurate.

3. Intermittency and Reliability:

• • Although the sun comes out every day, and we know with precision the times of the day this happens, clouds, rain, fog, or accumulated dust on solar panels diminish the solar production of photovoltaic projects. In turn, solar, alike wind electricity are intermittent and not reliable.

4. Energy Storage:

• • Effective energy storage solutions, necessary to balance supply and demand, are expensive and still in development, adding to overall costs.
  • Many may think that Energy storage is “the” solution to stabilize electricity prices from renewable energy sources, yet this myth missed to address the associated risks and incorrect pricing analyses.
  • In effect, all energy storage solutions are limited in their capacity to charge and inject electricity in the grid (5 to 6 hours/day).
  • In addition, energy storage (mineral batteries) solutions quickly degrade and require regular revamping (every 4 to 6 years).
  • So, now the investor is stuck with an asset (solar or wind) with a 20-year life span, including a mineral battery backup solution with an average 5 year lifespan.
  • If you think about it, in effect, this is as if the solar or wind asset with a life-span of 20 years, expected to amortize in lets say 10 years world-wide average, has a best-friend called energy storage solution which in effect, costs the same as the solar or wind asset yet needs to be amortized in less than 5 years in order for the investor to retrieve any return on investment.
  • So, if the solar or wind asset provides let’s say a 30USD/MWh electricity price, amortized over 10 years, the mineral battery storage solution costing the same, but requiring an amortization of let’s say 2.5 years, would provide an electricity price as a stand-alone solution of 4 times (10 years divided in 2.5 years). In other words, 120USD/MWh would be the electricity price from the battery system alone. 
  • Now, since the solar or wind projects are providing electricity (during their production hours per day) to the batteries for them to inject electricity in high demand and high price hours of the day, then the latter two numbers, need to be summed. That means we end-up with a price of 150USD/MWh for the electricity provided from the mineral batteries.
  • Alternatively, of course, the stand-alone mineral battery solution can be fed with electricity from coal or nuclear at a comparable price (30USD/MWh), yet, the total price consumers will end up paying is still comparable: 150USD/MWh.

5. Subsidies and Incentives:

• • Government subsidies and incentives for renewable energy can lead to market distortions, sometimes increasing costs for consumers indirectly.
  • In effect, governments get paid by us, the people and the companies. Most governments don’t produce money on their owns although some believe that printing money is the same as “market” making it.
  • In effect, any subsidy is a temporary solution to be depleted on to the people later in time via larger taxes.

… Continued Blog N°10