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Solar News

Threat to Solar Power: Declining Cost of Fossil Fuels


There are obstacles to solar power making inroads in the U.S., and the one that has taken a heavy toll in the last couple of years has been the lower price for natural gas and other fossil fuels.  The New York Times reported yesterday that the low cost of fossil fuels has hit hard some renewable energy projects. According to the Times, "Even as many politicians, environmentalists and consumers want renewable energy and reduced dependence on fossil fuels, a growing number of projects are being canceled or delayed because governments are unwilling to add even small amounts to consumers' electricity bills." It may be short signed, but declining costs of fossil fuels are becoming a major threat to the growth in renewable energy in the U.S.

The cost of fossils have hurt solar, but have especially undercut wind. According to the New York Times report, installations of new wind power have dropped a whopping 72 percent. Solar has not been as affected as wind, but the cost is a major factor in the slowdown in the growth in the solar industry. The gap in price between renewable and traditional energy has opened a divide between regulators and the utilities, who seem to have different time horizons. According to the Times, "The gap in price can pit regulators, who see their job as protecting consumers from unreasonable rates, against renewable energy developers and utility companies, many of which are willing to pay higher prices now to ensure a broader energy portfolio in the future."

As pointed out in an article on National Geographic, experts do not even agree on how much solar energy costs today. The article points out that the "standard" way of thinking about energy costs is the "total system levelized cost," which the article defines as "how much a power producer would have to charge for electricity to earn back the money spent building a new generating facility." Calculating the cost can involve some sophisticated guesses. As the article indicates:

Figuring out the levelized cost requires a number of guesses: How well the solar energy system will perform, how long it will last, and even how much sunshine it will get over the next 30 years. It's possible to make good guesses. But, right now, everybody makes different ones and it's hard to say who's right.

And that is only the "levelized cost"-which does not include the other societal costs that fossil fuels exact on human health and the environment. As National Geographic points out:

It's also important to point out why fossil fuel electricity is relatively cheap in the United States: The behind-the-scenes costs of burning fuel that produces carbon dioxide and noxious pollutants-health care costs, environmental cleanup, and the current and future expenses of adapting to a warmer world-are not included in the U.S. electric bill. Solar would naturally reach grid parity faster under policies that accounted for those costs by putting a tax or price on carbon.

If you want to hear a discussion of people with diametrically opposed views as to what are the costs of solar, then you should read this discussion from Arizona from ABC15 under the title, "Is solar technology just too expensive?" One discussant has this blunt assessment: "Solar Photovoltaic (PV) electric panels are far too expensive to provide a sustainable energy alternative to homes and businesses already connected to the electric utility grid. The solar industry and solar jobs are artificial and only exist because of large government subsidies. The industry is similar in many ways to the housing market bubble created by easy mortgages. When the subsidies end, the solar bubble will burst and most of the jobs and industry will vanish overnight. This is because the underlying economics of Solar PV are not viable." While the solar response is: "As market turbulence continues to rise, an investment in solar is a wise decision. Now is truly the time to consider solar, not only as a commitment to the environment, but as a commitment to your stable financial future."

Although there is serious disagreement about what are the appropriate costs to take into account, most agree that the cost of solar is still too high and must come down to make it a player in the U.S. energy market. That is the conundrum facing policymakers. Solar's cost is too high, but to bring down the cost, government support is necessary to give solar time to achieve economies of scale.

This debate has not eluded the highest level of government. Secretary of State Hillary Clinton and Australian Prime Minister Julia Gillard have set a goal of slashing the cost of solar power to the same level as conventional electricity in the next five years. The Daily Telegraph of Australia quotes Clinton: "We have a common goal of making solar energy competitive with conventional sources by the middle of this decade - 2015." According to the Daily Telegraph, "Mrs Clinton said the failure of the world to strike a deal to fight climate change at talks in Copenhagen last year could not be an excuse for doing nothing. ‘Rather than just waiting for global agreements, we have decided between our two governments to take steps on our own,' she said."

If the cost of fossil fuels continue to decline, then this goal may continue to be elusive.