How (Not) to Analyze the Cost of Renewables

October 23, 2019 | 2:41 pm
Joseph Daniel
Former Contributor

A Minnesota based think tank, Center of the American Experiment (CAE) releases a report last March greatly exaggerating the cost of roughly doubling current renewable energy use in Minnesota to 50 percent by 2030. The report claims that it would cost $80 Billion to reach this target. If that number seems unreasonably high, it is because the number is unreasonably high.

Based on today’s costs, $80 billion is roughly enough to build 80 gigawatts (GW) of utility scale solar PV. That is more than the 64 GW of total solar capacity  installed across the US through 2018.

Fresh Energy has had to rebuke CAE’s bogus claims not once, but twice this year alone. Frankly, CAE’s findings aren’t credible enough to warrant a response, under normal circumstances. But the report continues to garner media attention and so perhaps it merits an additional response.

The errors with the analysis are plentiful, but here I highlight several egregious assumptions and assertions that help explain its seriously flawed conclusions.

Renewable costs so high you’d think Minnesota legalized weed

The most egregious element of the “study” is how badly it overestimates the cost of renewable energy. CAE’s assumed capital cost for utility-scale PV roughly 2.4 times higher than the most recent data from the US solar industry. And while renewable energy costs have been declining rapidly (as noted by U.S. Department of Energy and the solar industry) those costs declines are not accounted for by the researchers. CAE  assumes wind and solar prices will stay flat. Yet the energy analysts at EIA, Bloomberg New Energy Finance and NREL, all organizations that carefully track renewable energy costs, project the costs of wind and solar to continue fall in the future.

Based on these and other spurious assumptions, CAE claims that the levelized cost of electricity (LCOE) is $49/MWh for wind and $117/MWh for solar. Those are 2-3 times higher than contract prices signed in the region. Wind PPA prices in the upper Midwest and interior region of the country have been in the range of $20-30/MWh over the past five years, according to DOE. While solar PPA prices are in the range of $28-$45/MWh, according to the solar industry. Now, a PPA isn’t a perfect measure of the costs to develop a wind or solar project, but the likelihood that those contracts are being signed at rates that leave the developers unable to pay taxes or shareholders at all, well that’s difficult to believe.

As if inflating the costs of renewables wasn’t enough, CAE tacks on some additional costs for good measure.

The study then further inflates the costs of renewables by double counting other developer costs that are already reflected in a PPA, such as utility profits and property taxes.

Not to mention those property taxes are being paid to—and reinvested in—communities across Minnesota.

CAE also tacks on some “integration costs.” CAE’s integration cost assumptions—35.97/MWh of wind energy produced—are also indefensibly high. For comparison, Xcel’s most recent study in 2015 found integration costs of less than $2/MWh for wind penetrations of up to 40%.

CAE assumes you have to build new gas in order to integrate reneawbles, when in reality there are plenty of existing resources and technologies that make renewable integration very cheap.

How did CAE come to overestimate integration costs by 1,799%? The authors assume that natural gas is needed to back up wind on a one to one basis with natural gas.

That is not how the grid works. The truth is, renewables integration is a “solved problem” one the industry figured out years ago, and while the grid continues to evolve, so too will the ways with which we integrate renewables.

NOTE: CEA also inflates the costs of wind and solar by adding on an additional $7.61 – $13.05 for every MWh of electricity generated by renewables for additional transmission infrastructure. Those costs aren’t reflected in the graphs above.

Fossil fuel prices so low they forgot to include the costs

Minnesota’s fossil fuels, particularly coal, aren’t that economically competitive with other, cleaner power sources. Which explains why so many are slated for retirement. Yet, this study found the cost of fossil fuels to be rather low.

One way that the study understates fuel costs is that they hold all fuel costs constant to 2016. They recognize that might be a “generous” assumption for gas but ignore the fact that coal prices are also increasing.

There was also a societal cost they included for renewable energy but neglected to include for fossil fuels: Subsidies. The IMF found that direct and indirect subsidies for coal, oil and gas in the US reached $649 billion in 2015. These costs go ignored by CAE.

Lastly, CAE all but ignored the costs of externalities, which utilities in MN are required to account for by state law. CAE considers itself a “free market” think tank, but markets can only be free when they are also free of externalities. And the external costs of coal are significant. The MN legislature, PUC, and Department of Commerce all require utilities to account for these costs. CAE did not, but UCS has and our approximation of these costs show that had CAE properly accounted for these costs, the cost to run coal would have more than doubled.

The MN Commission Requires Application of Externality Costs (Social Cost of Carbon and the like). For coal, those costs far exceed the costs to opperate the coal plant.

But wait… there’s more!

There are plenty more questionable assumptions, odd decisions, and specious assertions the study makes that there is no way I would have time to tackle them on in a blog post. For example:

  • CAE greatly underestimates the costs of building new nuclear plants, thereby ignoring the long and scandalous history of overruns that have burdened customers, bankrupted a 100+ year old company, and crippled utilities.
  • CAE fails to account for more cost-effective alternatives like increasing investments in energy efficiency, which can actually save consumers money. Minnesota utilities are currently achieving energy efficiency savings of around 1.5% of total electricity sales per year, while leading states are achieving much higher savings of 2-3% per year. Energy efficiency reduces emission and energy bills. It is also successfully targeted to low- and moderate-income communities to help reduce the energy burden those communities face. Increasing investments in energy efficiency could help offset the potential growth in demand for electrification, lower the amount of renewables that are needed to meet the RES, reduce the need for more transmission and distribution capacity, and save consumers money.
  • CAE fails to explain what appears to be a rudimentary error in calculation by suggesting that a 50% RES would require Minnesota to have a resource mix amounting to 56% renewables (45% wind, 6% utility scale solar, 3% community solar, and 2% hydro). More renewables is of course, a good thing. But in this case, it simply further adds to the over inflation of total policy costs.

There is a legitimate conversation to be had when it comes to the most affordable and just way to increase renewable targets. But this study doesn’t add to the conversation.

In summary, like many other skewed reports that seek to undermine the clean energy transition, CAE’s severely overestimates the costs of renewables and underestimates the costs of continuing to rely on fossil fuels. Many previous studies, like this recent one from Vibrant Clean Energy, have taken a much more rigorous approach and found that ratcheting up renewable energy targets in Minnesota can be achieved affordably and reliably.

Maintaining Minnesota’s leadership on renewable energy

It has been more than a decade since Minnesota passed major climate and clean energy legislation. Since the Next Generation Energy Act was passed in 2007, several states have committed to increasing renewables to more than 50% by 2030 and achieving 100% carbon-free electricity by 2050. Many other states are actively considering these policies. Stronger climate and clean energy policies will be needed to meet Minnesota’s statewide emission reduction targets of 80 percent by 2050. Increasing Minnesota’s RES to at least 50 percent by 2030 and achieving 100 percent carbon-free electricity by 2050 could go a long ways in meeting these targets and help limit the worst impacts of climate change.

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