Weekend Long Reads: What's the Cheapest Form of Energy?

by Kevin Schofield

This week's "long read" is light on words and heavy on charts and graphs. It's a comparison of the cost to generate electricity from a number of different sources, both clean and dirty.

The business and finance consultant company Lazard has compiled an analysis of the "levelized cost of energy" every year since 2007. By "levelized," they mean that they factor in all of the costs: capital costs to build out electricity generation facilities, including the materials, manufacturing, construction, installation, permitting, and property; ongoing operational and maintenance costs; fuel costs for the types of generation that require fuel; and regulatory costs. They calculate the expected operational lifetime of a power generation facility and then divide the sum of the costs by the total expected power generation over a facility's lifetime to arrive at a cost per megawatt-hour.

And there is some very good news for the planet: Solar and wind power, at the scale that a major utility would deploy them, are now the cheapest form of power. They're a bit less expensive than natural gas-fired power plants and considerably cheaper than coal and nuclear.

There are some important caveats and nuances to this story, however. The first, and perhaps the most important for those of us looking to put solar on the rooftops of our homes, is that solar is all about size. Residential rooftop solar is still very expensive: A decent-sized roof installation can generate enough power for your home with some to spare, but the up-front costs are still significant. Larger installations at commercial, industrial, and "community solar" sites are more cost effective, and of course the huge solar farms run by utilities are the cheapest.

Wind and solar also have one significant drawback: They are intermittent. Solar doesn't help you in the middle of the night, nor does a wind turbine when the wind isn't blowing. In order to have reliable, 24-hour power, you need to complement them with another "baseline" source such as gas, nuclear, or geothermal — or hydropower here in the Pacific Northwest. Until large-scale batteries get much better (and cheaper), we're unfortunately still a long way away from entirely cutting our reliance on conventional power generation.

That said, the drop in the cost of "green" energy over the past fifteen years has been phenomenal. Solar power generation today costs 10% of what it did in 2009. Wind power costs less than 30%. In contrast, coal is unchanged and nuclear power has become more expensive. And Lazard's analysis doesn't factor in many of the less tangible factors, such as the benefits to the environment from widespread adoption of greener power generation systems.

Even better, solar and wind technologies continue to improve rapidly, driving up the amount of power you can generate in a given space and driving down the cost even further. Given that every day we hear about the increasing impacts of climate change, the fact that green power is now cheaper than dirty power is welcome news indeed.

Lazard's Levelized Cost of Energy Analysis

Featured image is attributed to J Swanstrom (under a Creative Commons, CC BY-NC 2.0 license).