IRENA Overview on Renewable Electricity Cost

IRENA has published an overview about the cost of renewable electricity generation options in November 2012, which means that it is probably already outdated, as fast as solar photovoltaic prices are dropping.

There are a couple of interesting points worth noting.

For one, they explain that a wind project will have 60 percent higher levelized cost of energy if the capital cost is 14.5% rather than 5.5% (on page 5). That is clearly true and one reason why adequate investment protection is very important. Renewable investment needs to be secure, so as to get capital at low interest. And less than 2% should be possible as well, 5.5% seems somewhat conservative as a lower limit.

I recall that the World Bank is funding the Ourzazate concentrated solar power project. The World Bank charges less than 2 percent interest for their loans.

I also learn that with concentrated solar power, parabolic trough technology is slightly more expensive than solar towers (page 7). Noted for later reference, though that might change quickly. Concentrated solar power is still in a very early development stage and has a lot of ground to cover on its learning curve.

I also found this statement interesting (on page 6):

There are four major components that largely determine the levelised cost of electricity for renewable power generation technologies – resource quality, equipment cost and performance, the balance of project costs and the cost of capital. All of them can vary significantly between individual projects and countries.

I agree. Let’s go through that list with some comments.

First, quality of the resource. For solar, it makes sense to build projects where the sun shines. That is, as many sunny days a year as possible and as near to the equator as possible. That factor is one big reason why desert projects make sense. For wind, the electricity generated by the same installed capacity depends again on how much wind is available. But there is no simple reason why desert sites should be better than sites somewhere in Germany.

But the best sites in Germany are mostly already taken, or will be in due time. The deserts have a vast area with many good wind sites. And the Gobi desert is still completely virgin territory. All the best sites are still available, which is another reason generating electricity from wind in the desert makes sense.

Next is equipment cost and performance. That is another point where renewable (especially solar) is impossible to beat. Of course not necessarily at present prices. But the equipment keeps getting cheaper and cheaper. Especially the learning curve of solar photovoltaic is over 20 percent. As the report notes, equipment prices have gone down 60% over the last two years alone (page 8). And wind is already at about 4 cents per kWh at the best American sites (page 9). Of course, once the solar panels are paid for, they can continue to operate for centuries at basically zero cost, which will be not without influence on the price at which they can deliver electricity (see “Masayoshi Son: Zero Cost Solar Power” for a detailed discussion of that point).

Next up is the “balance of project cost”. I don’t exactly understand that. Maybe they mean “everything else” with that. For example, for solar panels one needs a work force to actually install them, inverters, racks to mount them on, a power line to get the electricity to the consumer. These costs are significant. In Germany, the decline in prices of the solar panels has had the effect to raise the percentage of these costs to 60% (all of which is value added in Germany by German installers, see this paper by Craig Morris at page IV).

Since labor cost is a large chunk, it would help a lot to reduce the final cost of a desert project if one can get the labor for free. That could be done easily by deploying military personnel for the installation. The only thing necessary for that to happen is that the leaders of the world understand that this kind of using their military assets makes sense, and actually helps keep peace (see “War on Climate Change Petition“).

And even if that can’t be done, labor costs in Mongolia are of course lower by orders of magnitude than in Germany right now. So that’s another point where it makes sense to build in the desert.

The final point is cost of capital. As I already said above, that can be very low, since a desert project in Mongolia is always a climate change mitigating development project. It can draw on World Bank and other development bank funds. And it would clearly qualify for financing under a Green Climate Fund framework.

 

 

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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