Destroying The Myth of Cheap Wind and Solar

Wind and solar advocates often cite a metric called the Levelized Cost of Energy (LCOE) to claim that these energy sources are cheaper than coal, natural gas, and nuclear power plants.¹ [emphasis, links added]

However, these claims, which are already tenuous due to rising wind and solar costs, ignore virtually all of the hidden real-world costs associated with building and operating wind turbines and solar panels while also keeping the grid reliable, including:

• Additional transmission expenses to connect wind and solar to the grid;
• Additional costs associated with Green Plating the grid;
• Additional property taxes because there is more property to tax;
• “Load balancing costs,” which include the cost of backup generators and batteries;
• Overbuilding and curtailment costs that are incurred when wind and solar are overbuilt to meet demand during periods of low wind and solar generation and are turned off during periods of higher output to avoid overloading the grid;
• These comparisons also ignore the cost differential between low-cost, existing power plants and new power plants.

Add all of these factors together and you have a recipe for soaring electricity prices due to the addition of new wind, solar, and battery storage on the electric grid.

To remedy this situation, we developed a model to calculate the levelized cost of intermittency (LCOI), which is the additional costs borne by the entire electric system as ever-growing levels of intermittent wind and solar generation are incorporated into the electric grid.

Our model attributes these additional costs to the wind and solar generators on a per megawatt-hour (MWh) basis to provide readers with an apples-to-apples comparison of the cost of providing reliable electricity service after accounting for the different attributes of dispatchable and non-dispatchable resources.

The graph below is from our study examining a 100 percent carbon-free electricity mandate in Minnesota, where 80 percent of the state’s energy is provided by wind, solar, or battery storage.

As you can see, relying on wind and solar to provide the bulk of electricity demand results in much higher costs compared to using the existing coal, natural gas, and nuclear power plants currently serving the grid.

How did the LCOE become so misinterpreted by renewable advocates? It stems from a time when, for the most part, only reliable power facilities were built on the grid, and it has been grandfathered into the present energy environment where less reliable, weather-based resources are now a major consideration.

However, as we’ll explain below, LCOE estimates are no longer an appropriate metric for assessing system costs on the electric grid with these intermittent energy sources included.

Before we examine the hidden factors that make wind and solar so expensive, it helps to understand what the LCOE is, and its limitations.

What is the Levelized Cost of Energy?

The LCOE is a cost estimate that reflects the cost of generating electricity from different types of power plants on a per-unit-of-energy basis—generally megawatt hours (MWh)—over an assumed lifetime and quantity of electricity generated by the plant.

In this way, LCOE estimates are like calculating the cost of your car on a per-mile driven basis after accounting for expenses like your initial down payment, loan, insurance payments, fuel costs, and maintenance.

The main factors influencing the LCOE for power plants are the capital costs incurred for building the facility, financing costs, fuel costs, fuel efficiency, variable operational and maintenance (O&M) costs such as water consumption or pollution reduction compounds, fixed O&M costs such as routine labor and administrative expenses, the number of years the power plant is expected to be in service, divided by the amount of electricity the facility expected to generate during its useful lifetime.

If you want to learn more about these variables, you can check out this link.

Limitations of LCOE

While the use of LCOE may have been appropriate in the past when most if not all, newly proposed generating units were dispatchable, the introduction of intermittent renewable resources has made LCOE calculations less informative over time because this metric was developed to compare resources that were able to provide the same reliability value to the grid.

Because wind and solar are not able to supply reliable power on demand like dispatchable energy sources such as coal, natural gas, or nuclear power, it is not appropriate to compare LCOE estimates for dispatchable and non-dispatchable electricity sources because they are not an apples-to-apples comparison of value.

This is why the U.S. Energy Information Administration explicitly cautions readers against comparing the LCOE of dispatchable and non-dispatchable resources. Unfortunately, this word of caution is seldom heeded.

In other words, LCOE estimates do not reflect the system cost of utilizing each energy source on electrical grids – they are the cost incurred by the developers for each project (or the revenue needed for cost recovery).

They do not cover the total cost incurred by energy consumers who pay not only for the facility and its production but also for transforming the grid to accommodate and provide backup for these energy sources.

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