Solar Is Cheapest Energy Source Says IEA

Solar power has been touted as the cheapest available source of energy for several years now. Solar power proponents have been talking about the consistent decline in the cost of raw materials and panel production. They have also talked about LCOE.

The levelized cost of energy is a metric that fans of wind and solar like to cite often. It is calculated using a simple formula where you divide the sum of cumulative costs for an energy project over its lifetime by the amount of total energy the project will generate over its lifetime.

With this formula, wind and solar do look cheaper than gas-fired power plants or nuclear, which require a lot more in upfront investments. But what the LCOE formula does not account for is the fact that wind and solar do not generate electricity around the clock. That’s one major cost that is getting overlooked.

Another substantial cost related to renewables that gets overlooked on a regular basis is the need for storage capacity to offset the intermittency problem.

First, there is no such storage capacity available that could solve the problem in its entirety, and this already means solar is not as cheap as suggested by its LCOE. Second, available storage technology is rather expensive, piling on more additional costs, also overlooked by the LCOE formula.

Yet, according to the International Energy Agency, as cited by Energy Intelligence, even when factoring in the cost of intermittency, solar remains cheaper than all other sources of energy, and specifically those generated using oil, gas, and coal.

Apparently, this is true even when calculated not on an LCOE basis but on the basis of something called a value-adjusted LCOE that takes into account the dispatchability of fossil fuel generation and its positive effect on its competitiveness.

The reason that the IEA has reached that conclusion is a simple one: cost assumptions. It is based on cost assumptions for solar power generation costs versus fossil fuel costs by the International Energy Agency, an enthusiastic cheerleader for a complete energy transition to a wind, solar, and hydrogen dominated grid, who has concluded that solar is the cheapest form of energy available.

All told, the IEA calculates that on a value-adjusted basis—and with cost assumptions in place—solar comes in at $60 per MWh while gas is $20 more expensive at $80 per MWh. This, of course is a very different gap than the one that opens up with a simple LCOE calculation: $25 per MWh for solar and $110 per MWh for gas. But even that gap is misleading.

With all the above in mind, one cannot help but wonder why governments are distributing billions of dollars in subsidies for solar power. Many perhaps also wonder why the countries with the highest ratio of renewable power generation capacity in their energy mix also have some of the highest electricity prices per capita.

If solar power is the cheapest kind around, why is Africa not rushing to harness its enormous solar power potential? Why are solar developers not flocking to Africa where so many people have no access to electricity and would greatly benefit from such a cheap source of it?

The answer to the above questions reveals yet another regularly overlooked cost associated with presumably cheap solar power: transmission. Africa—and other parts of the world—does indeed have huge potential for solar power generation. What it often lacks is the transmission infrastructure. It also lacks enough paying clients for that cheap solar.

Even countries far ahead of African states on the road to windization and solarization have trouble with their grid, by the way. The United States alone would need billions in investment to upgrade the grid to accommodate the wave of new wind and solar capacity coming online.

There is also the question of balancing the grid. What most people don’t know because they don’t need to know it is that any electrical grid is a fine-tuned symphony of electrical flow that needs to remain in balance at all times. Sharp jumps and drops in that flow are not something a grid can handle easily.

A surge in wind and solar generation makes grid balancing a lot more challenging—and costly. In the UK, for instance, wind turbines have to be turned off on the windier days because they produce more electricity than the grid can handle. This turning off costs money. A lot of it.

The Czech Republic had to turn off solar farms over Easter this year because they were generating more electricity that the grid could handle. Other countries have had to do it, too. Because that’s how solar works – it generates electricity when the sun shines and if there’s more sun than there is demand for electricity, the grid risks tipping off balance and grid operators can’t allow that.

On the surface, then, solar could be cheaper than everything else. The deeper you look, however, the more additional costs you uncover. Add them all up, and it becomes clear why the cheapest of the cheap still needs so much in direct government subsidies to keep going.