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Has Renewable Energy Achieved Cost Parity With Conventional Energy Sources?

By Matt Marino '01

You may not have solar panels on the roof of your home, but it’s very likely whatever screen or device you’re reading this on is being powered or charged by a growing stream of “wholesale” renewable energy. It begins its journey at distant (or nearby) wind or solar farms, flows over the transmission and electric grid - where it mingles and plays nice with fossil and nuclear power - and finally arrives on your neighborhood electric poles and through your wall sockets.

For renewable energy sources, competing to provide wholesale supply is a different value proposition than installing solar on the roof of your home or business, where the return on investment for a system owner is a function of displacing higher retail electric rates purchased from their local utility. When large wind or solar farms – “utility scale” is the industry term – enter the wholesale market, they are going head-to-head with other forms of bulk power supply, usually sourced from a combination of large coal, natural gas and nuclear power plants.[1] This is happening across the country in all the major regional power markets, from Maine to Los Angeles.

An Infographic from the U.S. Energy Information Administration Exhibits “Utility Scale” New Wind and Solar Facilities Throughout the Country[2]

Energy Infographic

Legacy arguments about the higher costs and load proximity of renewable energy resources have been consistently disrupted by determined developers (and investors). This growing market and competition for sourcing new capacity is rapidly driving down the technology and soft costs for developing new renewable power plants, which opens even further markets and applications for renewables. It’s a textbook innovation cycle, resulting in a massive shift of and Creative Destruction within the electric power industry.

Over the last 5 years, wind and solar projects have collectively added approximately sixty gigawatts (GW) of electric generation capacity in the U.S., the equivalent capacity of twenty Hoover Dams, or sixty typical nuclear power plants, and two times more than natural gas generating capacity added in the same period.[3] In California, renewables are now consistently providing almost half of all delivered electricity during peak hours of the day.

Yet, debates about the cost and viability of renewables linger, and perception often lacks the reality and pace of market adoption. This is largely an error of inference: there are and probably always will be certain regions where renewables or a particular renewable technology are not competitive in the wholesale power market. The attractiveness of renewable energy in a particular spot is a function of many local factors: intensity of the resource (the wind or sun), access to transmission, labor capacity, competition for contracts and relative electricity prices. But as renewable technology has improved (yield/$) and the supply chain scales, we are seeing many more of those spots…

  • North Carolina has added more than 1 GW of solar in the last 5 years. Most remarkably, the majority of their solar capacity has been added by solar farms selling their output at “avoided cost” - that is, the utility’s typical blended wholesale cost of power.[4]
  • Georgia Power, which has electric rates 10% below the national average, has recently procured over 400 megawatts of solar at below-avoided-cost prices averaging less than $0.065/kWh, and maintains the benefits of an avoided cost price ceiling include “no cross subsidies or additional upward rate pressure.”[5]
  • In Texas, wind farms are out-producing and undercutting coal power plants in the wholesale market.[6] As would be expected from Texas, they are going big on solar, too: Austin Energy’s 2015 solicitation for wholesale solar projects resulted in 1.2 GW of bids under $0.04/kWh.[7]
  • Warren Buffett, always hunting a good value, has scored the cheapest wholesale solar deal ever, reportedly under $0.04/kWh, in Nevada through his Berkshire Hathaway subsidiary, Nevada Energy. Bloomberg analysts called the contract with developer First Solar “likely the cheapest electricity available in the U.S. today.”[8]
  • The Department of Defense, one of the largest single energy customers in the world, created a strategic initiative to develop 3 GW of new renewable energy projects for the dual purpose of price certainty and grid reliability, with a notable provision to require contracts at or below market prices.[9] Notable projects include a contract for 65-85 MW from a combination of wind and solar serving Ft. Hood, and a 210 MW procurement of solar serving 14 Navy bases throughout California.[10] [11]

Cases like these illustrate how widespread utility scale renewables are becoming, even when you can’t see them up close. They also result from a two-decade surge in policy, investment, competition, innovation and plenty of misses from an industry finally reaching a tipping point. Finally, they are a challenge: like other commodities, energy markets are dynamic and highly regionalized. Success in one market or region does not guarantee commercial viability in the zip code next door, but it informs the possibility.

The emergence of renewables and the broader climate and resource challenges ahead are highly interdisciplinary. I have personally seen that the success of energy projects or technologies are not a singular feat of engineering, policy, finance, or marketing, but rather a combination of diligent work by professionals from all of those fields. I have had the privilege to meet and work with alumni and BCEEAN members in the energy industry whose formal Boston College studies spanned the quite varied disciplines of Philosophy, Literature, Finance, Science and Law. This is incredible evidence for the role of strong liberal arts institutions in producing industrious leaders and problem solvers, and a call to action for current faculty and students with an interest in energy and environmental issues from all disciplines and throughout our University.

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