Utility-Scale Solar Power Will Grow with the Help of Natural Gas

Lux Research Gives Positive Exposure

Ken Silverstein | Dec 04, 2013


Utility-scale solar power is getting a lot of exposure now that a major research firm has said it would be almost as competitive as natural gas by 2025. But, it adds, that the two fuels could mutually benefit by joining forces.

An upshot of what Lux Research says is that solar costs will fall faster than gas prices. That's because of rising natural gas demand and the increasing of liquefied natural gas exports, both of which will counter the growing production from shale gas. The firm is assuming natural gas prices of between $4.90 per MMBtu and $9.30 per MMBtu.

“Solar’s eventual cost-competitiveness means increased gas penetration actually benefits it, by enabling hybrid gas-solar technologies that can accelerate solar adoption without subsidies and increasing intermittent renewable penetration without expensive energy storage or infrastructure improvements,” writes Ed Cahill, lead researcher for Lux, in the reported titled “Cheap Natural Gas: Fracturing Dreams of a Solar Future.”

Solar power that is woven together with natural gas can maintain both electricity prices and grid reliability, he adds. He expects a 39 percent decline in utility-scale solar systems by 2030, which along with continued shale-gas drilling hurdles in Europe and high capital costs in South America, will benefit U.S. solar makers. It could come within .02 cents a kilowatt hour of electricity generated by combined cycle natural gas plants by 2025, he adds.

Specifically, thin-film solar systems used by utilities may see their prices drop from $1.96 a watt today to $1.20 a watt by 2030, attributed to "module efficiencies." That’s the installed price tag, or what it cost to construct and operate a facility, known as the “levelized cost.”

Utility-scale solar has two components: First, it could be used for concentrated solar power that can generate huge amounts of power that is fed through the transmission grid and to end-users. Second, it can also refer to photovoltaic technologies that typically generate electricity via solar panels. They capture light energy from the sun and then use that light to drive an electric current.

The benefit of concentrated solar plants is that the facilities can be equipped with molten salt as a heat transfer fluid and energy storage device, allowing generation to occur after the sun has set. But construction and production costs are high, especially when compared to falling photovoltaic (PV) solar panel prices, which can be found not just on rooftops but also in huge fields. Energy derived from PV panels, however, can only be accessed when the sun is out.

Falling Prices

To be clear, PV technology has historically been more suitable for smaller projects, but the 66 percent panel price declines over the past two years has led some developers to convert their concentrated solar power plants to photovoltaic technologies. Duke Energy, for example, is aggregating thousands of panels to provide utility-scale PV plants in North Carolina.

Right now, concentrated solar facilities are providing 520 megawatts of installed power in the United States. The Solar Energy Industries Association adds that five planned mega concentrated solar power projects are to hit the market by 2014. That would increase that total to 1,300 total megawatts. By comparison, it notes that about 4,400 megawatts of PV solar power are installed here.

Solar prices will continue to fall. As new technologies evolve and competition continues to intensify, the hope is that those prices will fall to 5 cents a kilowatt hour by 2020 without subsidies. As a current benchmark, El Paso Electric and First Solar are entering into a 25-year power purchase agreement that is valued at about 5.7 cents with subsidies per kilowatt hour, all to finance a 50 megawatt PV project.

“On the macroeconomic  level, a ‘golden age of gas’ can be a bridge to a renewable future as gas will replace coal until solar becomes cost competitive without subsidies,” says Lux’ Cahill. “On the microeconomic level, solar integrated with natural gas can lower costs and provide stable output.”

Ultimately, though, the goal of the Obama administration and its environmental backers is to advance wind and solar, and other renewables. Until then, they will need subsidies, which is a sore spot among the various energy interests.

That is giving developers of everything from solar panels to wind turbines to energy storage devices the faith they need to innovate, says Erik Ela, an engineer at the National Renewable Energy Laboratory, who spoke previously with this writer. Vendors have the ingenuity, he says, but tenuous markets often make such progress impractical.

State mandates and financial incentives are driving development. But solar projects must still carry their economic weight. The Lux report is shining the spotlight on the whole solar industry, especially as increasing amounts of utility-scale solar plants come on line: The technology, combined with natural gas, could eventually be competitive with other fuel forms.

Twitter: @Ken_Silverstein

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Wishful Thinking

My comments focus on the article rather than Lux Research's report, which I have not read.

First, absent some kind of manufacturing breakthrough or a substantial increase in module efficiency, the steep price declines we've seen in solar modules and panels are going to level off if they already haven't.  The kind of manufacturing breakthrough I have in mind is a fully formed panel that rolls off a device like printing press.  Entrepreneurs have been trying to do this for decades with little success.

Second, solar-thermal (CSP) is unlikely to ever become cost-competitive.  It has very high capital costs and the value that accrues from adding thermal storage declines pretty quickly as CSP penetration increases.  Moreover, the kind of molten salt storage that's currently contemplated for CSP has very high losses - about 50% of the energy that's directed into a molten salt tank is lost in the process of being converted to electricity.

I agree with the thesis that natural gas and solar are complementary technologies, because without natural gas-fired balancing services and off-peak production, either solar would be of limited use or we'd have to build an enormous amount of expensive storage or we'd have to adjust to part-time and uncertain availability for grid power. Unfortunately gas-fired generation isn't going to help a whole lot with carbon reduction.

As an investor, I think I'd want to be owning plants with long PPAs that recover most or all of the capital over 30 years.  At t his stage, I'm not very interested in firms that provide technology because they're unlikely to be sufficiently profitable.

Jack Ellis, Tahoe City, CA