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Is Solar Cheaper Than Natural Gas?

Jun 30, 2020

I apologize for all the numbers. They are geeky, but important if you are interested in the true cost of electricity. If you aren’t, you can stop reading now or skip to the fourth from last paragraph and see the answer.

A few weeks ago, environmental protesters argued that the Alabama Public Service Commission should mandate that Alabama Power build solar generation instead of its proposed natural gas combined cycle plant because solar power is cheaper. The Rocky Mountain Institute reports that today clean renewable solar power is cheaper than natural gas-fired generation. Bloomberg Energy, USA Today and other media outlets also report that solar power is now cheaper than fossil fuel generation.

The price of solar power, especially utility-scale solar power, has declined dramatically over the past few years. The International Renewable Energy Agency states the price of solar power has dropped 84% over the past eight years. PowerSouth has had recent experience with both natural gas and utility-scale solar power.

I have discussed PowerSouth’s generation plans in these articles a number of times. We will close our coal-fired Lowman Plant in Leroy, Alabama, in October and build in its place a state-of-the-art 693 megawatt (MW) natural gas combined cycle plant.
The new plant will cost more than $500 million to construct. We expect it to operate at a capacity factor of at least 85%, which means on average it will produce its stated 693 megawatt output 85% of the time. At that capacity factor, the fixed cost (or capacity cost) of owning the combined cycle plant will be approximately $8.90 per megawatt hour (MWH). The energy cost (or variable cost) to operate the plant will be dependent upon the price of natural gas and its transportation cost to the plant. At $2.00/MMBTU (when I wrote this article, daily gas was $1.68/MMBTU), plus operations and maintenance costs, the variable cost of energy from the combined cycle plant will be approximately $20.63 per MWH. Therefore, the total generation cost of electricity from the combined cycle plant (with $2.00/MMBTU natural gas) will be approximately $29.53 per MWH.

Additionally, we recently signed a contract to purchase solar power from an 80-MW solar generation facility starting in 2022. The solar facility will operate at a capacity factor of about 25%, which means it will provide its promised 80 MW about 25% of the time. We will buy the output of the solar facility on a dollar-per-MWH fixed cost basis when energy is produced. The cost of energy under our solar contract is very attractive at a generation cost of about $22.00 per MWH.

The cost of this solar-generated electricity at $22.00 per MWH is cheaper than the cost of electricity from our natural gas combined cycle plant at $29.53 per MWH. However, that comparison doesn’t even start to tell the whole story.

Electric consumers in developed countries demand power to be available whenever they need or want it, not just when the sun is shining. The combined cycle plant is fully dispatchable and will provide electricity when people need it, whether the sun shines or not. Solar power doesn’t generate at night and is limited on cloudy days. Solar power must be paired with something else before it is as reliable as natural gas.

The solution most often offered is battery storage.

Batteries can be deployed at utility scale, but additional solar generation must be installed to charge the batteries while the sun is shining so the batteries can provide power at nights and on cloudy days.

Batteries are designed for specific discharge cycles. Most utility scale batteries have four-hour discharge cycles; therefore, at least three sets of batteries will be needed to cover the nighttime hours and provide a reserve for cloudy days.

Battery costs are decreasing, but based upon recent proposals of $1,500,000 per MW, the total cost of battery storage is about $92.33 per MWH, in addition to the $22.00 per MWH cost of the solar power to charge the battery.

Very conservatively, the total cost of the solar power with battery storage will be an average of $56.63 per MWH, assuming solar 15 hours a day and batteries 9 hours. With natural gas at $2.00/MMBTU, that cost is about 92% higher than the cost of electricity from our planned combined cycle plant.

Why then do many statements that solar is cheaper than natural gas go unchallenged? The information is hard to find, and calculations are difficult. Too often the cost of pure solar when the sun is shining is offered as the comparison to natural gas. That is not a true comparison – electricity must be available on demand, not just when the sun is shining. And, finally some people aren’t truthful, even to themselves.

Given a choice, a huge majority of people will choose the lowest cost and most reliable source of electricity. Today, that is clearly natural gas.

I hope you have a good month.

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