Jordan Wealth Management Group - ScotiaMcLeod Truro

How Much Does It Cost?

How do the costs of alternative energy technologies compare?

We find that solar crystalline is the most expensive at $153 while solar thermal is $90 per MWh, both still significantly more expensive than traditional sources. In comparison, nuclear power costs $62, coal is $55, and natural gas plants are $52 per MWh. Wind and geothermal power are the least expensive alternative energy sources at $43 and $36 per MWh, respectively.

“Grid parity” is a moving target. Grid parity is dependent on the price of natural gas which generally sets the price at peak times. With NYMEX gas at $5, this implies power prices in the range of $36 for efficient gas plants (7,200 heat rate) to $70 for inefficient peaker plants (14,000 heat rate).

From a utility’s perspective, solar is far from grid parity without subsidies. At a $6/watt system price, solar PV (crystalline) is approximately $153 per MWh and $140 for thin film, including the investment tax credit incentive. Without incentives, solar PV is $240 and wind is at $64 per MWh.

Regardless of the economics, we believe solar will continue to grow. There is significant momentum behind the solar industry, but that growth is being driven by policy directives and government incentives, not by economics. Additionally, residential and commercial users can benefit from roof-top solar systems, which are influenced by slightly different economics.

Cost reductions are key for solar. Longer term, solar has its place on the grid, as it generates power at peak times and has zero carbon emissions. However, to be an economic alternative for utilities, system prices need to decline 50% (to $3/watt, including the balance of system components), and a $20/ton carbon tax must be imposed on carbon-generating plants. We think the oversupply in solar can drive prices to this level by 2010-11. Under this scenario (no incentives, 50% cost reduction, and a $20 carbon tax), solar PV LCOE is $141, which implies a gas price of at least $10 for it to be economical.

Grid investments are project specific and can be significant. For example, a $1 billion transmission investment for a 500-mile line would add $20 per MWh to the LCOE. Distributed generation, such as rooftop solar PV, fuel cell power plants and microturbines, have the benefit of requiring minimal grid investments.