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Grid Parity: Renewables vs. Coal

Renewable Energy Cheaper Than Coal

Written by Nick Hodge
Posted November 28, 2007

"Just Google it." That's a phrase that has permanently entered into our everyday discourse.

We use Google every day to find song lyrics, celebrities' ages and any other obscure fact we can't immediately summon from our firing synapses. In a decade's time, Google has transformed itself into the Mecca of information gathering and problem solving.

So it only seems natural that now, with an energy crisis mounting, Google has stepped up to help usher in the next generation of energy technologies, much like it ushered in an era of readily accessible information.

On Tuesday, the company—which boasts a near $213 billion market cap—announced a plan to spend hundreds of millions of dollars to help renewable sources of energy reach price parity with traditional ones, mainly coal.

They've called the project Renewable Energy Cheaper Than Coal, and are hiring a garrison of engineers in an effort to advance technologies like solar, wind and geothermal power.

Google will initially use the fruits of its labor to power is immense data centers, selling excess electricity back to the grid. The goal, according to cofounder Larry Page, is to "produce one gigawatt of renewable energy capacity that is cheaper than coal." One gigawatt, or 1,000 megawatts, is enough power about 675,000 homes—about the size of Baltimore or Fort Worth.

This announcement is only further proof of a fundamental shift in how our country, and the world, views the future of energy. The US's sixth-largest company is pursuing this venture not only for its environmental benefits, but for economic profit as well.

Page made it clear that this is a for-profit activity, to be accomplished through in-house energy savings and the worldwide licensing of any new technologies that are developed.

This seems to be the trend in Silicon Valley, where this month we saw Nobel Prize winner Al Gore partner with Kleiner Perkins Caufield & Byers, a key venture player in the dot-com boom. It's also the mound from which Vinod Khosla and Bill Gates have been lobbing venture money at renewable start-ups through their respective venture firms.

And, speaking of venture capital, environmental technologies like renewables, water and carbon reduction are now the biggest recipients of venture capital in the US, with more than $4 billion invested last year.

With so many dollars and as much devotion now dedicated to the sector, the day renewables are price competitive with traditional sources may be closer than many think. And there's some speculation that we might even be there already.

Coal Power More Expensive than Renewables?

A recent report by an independent economic consulting group said that the state of Nevada would "likely save money and surely cut pollution if it goes for renewable power instead of building three huge coal power plants."

The consultants, ECONorthwest, cited higher construction costs and an inevitable tax on carbon dioxide emissions as the causes of skyrocketing coal costs at a time when wind, solar and geothermal costs are constantly decreasing.

And when paired with an energy efficiency program, the use of renewables will mean "lower costs and lower risks for ratepayers and probably will produce a higher number of job opportunities for Nevadans," according to an author of the report.

Sierra Pacific Resources, owner of the two major utilities in the state, is more than willing to listen, especially if means a positive effect on their bottom line. Even before the report was released, Sierra announced they'd be closing 300 MW of coal power in southern Nevada.

By 2015, they intend  to add $2 billion worth of renewable energy projects. And the state already has an active energy efficiency program.

But what I think the most important implication of this article is that lifecycle costs are now being used to compare two sources of energy. For a long time—and I never figured out why—the unsubsidized price of renewables was always compared to the subsidized price of coal.

This fact is overlooked time and time again when comparing renewable prices to coal prices on the road to the Holy Grail of grid parity—the point when the two prices intersect.

Suntech Power Holdings Co., Ltd (NYSE: STP) has predicted they'll drive costs down to around $0.15/kWh with their solar panels in the next five to seven years. And while that's still higher than the current accepted coal prices of less than $0.10/kWh, consider what happens when we throw in just the cost of carbon.

In the European Union (EU), one ton of carbon emission costs about $25.

A coal plant emits about 17 tons of carbon per megawatt of nameplate capacity per day. A 500 MW coal plant, operating 75% of the time, will produce 3.28 trillion kWh of electricity along with 3.1 million tons of CO2 emissions every year.

At a price of $25/ton, the cost of emissions climbs to over $77 million total or about $0.023 per kWh.

And while two cents may not sound like much, we haven't factored in the effect of coal subsidies—which are still huge—or the cost of air pollution and related illnesses.

The price of renewable energy never includes subsidies and it doesn't cause air pollution or illnesses.

Also overlooked is that the grid parity point is location-specific, meaning the price fluctuates depending on the region. In Hawaii, for example, solar has already reached grid parity with coal, for obvious reasons.

Bottom line: renewables are fast approaching parity with coal, if they haven't reached it already. And the market is quickly deciding which one it prefers.

Take a quick look at a six-month chart for Suntech Power.

solar company chart Suntech Power (NYSE: STP)

And then look at a chart for the same time period of the dirtiest utility in the US, Southern Company (NYSE: SO).

dirty coal company Southern Company (NYSE: SO)

I'd say there's a clean winner there—pun intended.

At Green Chip we're racking up similar gains day in and day out. The days of dirty power are over. Don't you want to be in on the next generation of energy profits?

Become a member of Green Chip today.

Until next time,

nick hodge

Nick

www.wealthdaily.com


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