If grid parity has already been reached, why is it so expensive to switch to renewable energy?

Question

Grid parity happens when the renewable energy source is competitive with fossil fuels without government subsidies. It has apparently already been reached by wind and solar power, at least in some parts of the world, in 2014.

However, it seems that ditching fossil fuels for renewable energy still costs trillions upon trillions of dollars.

Why? Presumably if grid parity was reached by some countries in 2014, then wind and solar power has actually become cheaper than fossil fuels in these places by today (2020), which would give a powerful economic incentive to switch - but they apparently aren't willing to.

Only thing I can think of is the up-front costs required to build the wind & solar farms, but this seems weird, because solar panels are apparently heavily oversupplied (2012 source, 2018 source).

Answer 1

You need to consider short term intermittency (the wind not always blowing and the sun being down 50% of the time). That needs to be covered by some form of short term storage, most of which are expensive at scale. Or long distance grid interconnects.

But worse than that, you have, at least in some areas, massive seasonal variations. I've looked at, but can't find it right now, a document by California's Energy Commission where they claim a factor of 5 difference between peak solar and wind production at high vs low times of the year. That seemed high, for California's weather, but higher latitude zones have massive summer/winter solar variations (German winter sun? hah!).

That's something that no storage is going to help with, you'll need to either source elsewhere or get around by overcapacity.

These factors don't show up that much when renewables are a small proportion, but they become more important as fossils are retired entirely (which they should). The bottom line is that, right now, seasonal variations and day-to-day intermittency is going to make a full-renewable system difficult to pull off.

Let's not forget that Germany's energy wende swallowed 130B$ and then still increased emissions, because their baseline backup went to coal, some of it lignite.

• NY Times - 2017
• DW - 2017
• Forbes - 2019

At this point, in 2019, Germany is operating around 30% solar + wind, so those problems are manifesting at what's nowhere full near "full renewables".

While I am at it, why does Energiewende Wikipedia refer to CO2 reductions since 1990, as its policies only started in 2000? A look at this World Bank graph gives a clue - it allows to claim a hand in emissions reductions that happened before the Wende. Now, plug in some other Euro countries and see how they compare minus the Wende.

I am all for taking global warming seriously, but let's not repeat the silliness of the ethanol subsidies for dubious gains once the full cycle of production is accounted for. Every dollar badly spent is a dollar not available for better solutions. We can't afford to do that very often. Even replacing older coal plants with natural gas is risky if it locks us into natural gas for the next 50 years - natural gas is not carbon neutral by any means.

In a perfect world, we'd gradually increase carbon taxes and fund better systems from revenue. In a less perfect world, we'd do revenue-neutral carbon pricing + dividends. In our current world, we don't price carbon, but subsidize various technologies, not all of which are grid scale ready and not all of which actually reduce emissions much.

We really need to get it right, because the CO2 numbers of the chosen solution mix make sense, not just because it feels right. And even the $ numbers need watching, because the wrong tech will not scale outside rich countries.

Also, as has been discussed above, it pays to understand what "parity" means. It refers to averaged construction + operation costs per kwh. So, it really says new coal capacity vs new solar capacity? Switching means taking out existing fossil.

Answer 2

tldr: future expenditure to provide clean energy to the world, is very much in line with current expenditure to provide mostly dirty energy to the world. The reason the switch isn't happening fast enough is due to the incumbents' political power, and the fact that their capital expenditure is a sunk cost.

You ask why does it cost trillions of dollars to provide clean energy to the world. The short answer is that this is to provide clean energy to the world for decades: once the infrastructure is built, it will carry on producing energy for 20 years or more - there's no fuel that needs to be burnt to keep it going. At the moment, the world spends about 10% of global GDP on energy - 6 trillion US dollars in 2011. That's the crucial number that puts the cost of decarbonisation into the right perspective - it means that future expenditure to provide clean energy to the world, is very much in line with current expenditure to provide mostly dirty energy to the world (once we account for growing energy demand from developing countries).

Here's a chart from the corrigendum to the International Energy Agency's World Energy Outlook 2017, which shows the scale of annual expenditure currently - as you can see, across all the four energy vectors listed, the world spends about 6.5-7 trillion dollars per year: (pdf page 3, original document p99)

Let's put aside their future forecasts for now, because they've repeatedly been wildly wrong - that chart is just there as evidence of the current scale of energy expenditure.

Moving on to specifics about the cost of the transition, and why the market isn't just doing everything:

Grid parity just means that the levelised cost of energy for new PV or wind is the same as that of new coal or gas.

But in existing markets, that's not the competition.

The competition is between new PV or wind, and existing coal or gas. And whereas existing coal or gas just need to be able to pay their fuel bills (and any debt interest) to stay open, renewables need up-front financing to cover the whole cost. And typically, coal or gas plants will have paid off their capital cost some time ago. So there, the competition is between capital expenditure and operating expenditure for renewables, versus just operating expenditure for fossil fuel.

For new generation, it's different. Any governments building new fossil plant now, are just ignoring the economics. They've typically got another agenda at play - typically serving a powerful lobby.

The intermittency cost of renewables (that is, the cost of providing the balancing, aka ancillary, services, to integrate them into the grid and maintain grid security) is something of a red herring, an irrelevance. Twenty years ago, it looked like those costs might get significant, for penetrations over 30% or so. These days, thanks to auctions for ancillary services in GB and elsewhere, we know that those costs are incredibly low. It is possible that those costs could become non-trivial for penetrations over 70% or so across an entire synchronous grid, but nowhere is close to that yet; by the time anywhere gets close to that (and GB and Ireland are two of the places that might), renewable costs will have come down even further.

Here are some figures for the auctions of the grid services that balance the intermittency of renewables. The June 2019 capacity auction cleared at 77p/kW: that is, the price for providing backup power of 1 GW was less than £1 million. The Enhanced Frequency Auctions also cleared at unexpectedly low prices - less than £12 / MW / hr.

Answer 3

The definition of grid-parity is all about LCOE (levelized cost of energy). The problem with this metric is that traditional fossil fuel generators are dispatchable which means that the grid operator can control their output to meet the demand on the grid. Solar and wind are not dispatchable, in fact they're worse than just "not dispatchable". A nuclear plant would typically (many of French reactors are the exception to this rule) not be dispatchable but at least it produces steady output. Solar and wind, as we all know, produce power only when the sun is out or when the wind is blowing. These are just observations of the nature of grid-parity.

If you look at the paper in question paper in question, he actually makes the case that going to all renewable is cheaper.

The 2050 LCOEs, weighted among all electricity generators and countries in the BAU and WWS cases, are 9.78 ¢/kWh-BAU-electricity and 8.86 ¢/kWh-WWS-allenergy, respectively (Table S34), excluding at this point any costs for peaking and storage. Taking the product of the first number and the kWh-BAU in the retail electricity sector, subtracting the product of the second number and the kWhWWS-electricity replacing BAU retail electricity, and subtracting the amortized cost of energy-efficiency improvements beyond BAU improvements in the WWS case, gives a 2050 business cost saving due to switching from BAU to WWS electricity of $115/year per capita ($2013 USD). Estimating an additional 0.8 ¢/kWhWWS-electricity for peaking and storage in the BAU retail electricity sector from Jacobson et al.4 gives a WWS approximate business cost of 9.66 ¢/kWh-WWSelectricity, still providing $85/year per capita savings for WWS relative to just BAU’s retail electricity sector.

Of course you must take note of the phrase "excluding at the point any costs for peaking and storage" which would be significant.

Answer 4

If we take the case of Germany vs Ireland as an example, the parity in Germany was helped by the PV subsidies which actually increased the cost of electricity:

[In Germany:] The per unit contribution to RES expansion increased from 1.33 cent/kWh in 2009 to 6.35 cent/kWh in 2016 leading, among other effects, to a residential electricity retail price increase from 21.4 cent/kWh to 27.7 cent/kWh which made self-consumption continuously more attractive altogether (Johann & Madlener 2014). [...]

Unlike in Germany and many other countries, however, the Irish REFIT does not provide support for solar energy so far. Moreover, REFIT is levied by the Public Service Obligation (PSO), i.e. it is paid for on a per household rather than on a per unit basis. As a result, residential electricity retail prices (per kWh) have not increased to a similar extent. They amount to approximately 18 cent/kWh, which is much lower than in Germany.

So from this it seems clear that parity is more or less equivalent with higher prices. (Also of note, Ireland still has pretty high electricity prices compared to other EU countries; Germany has the highest.)

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Also, as explained in a brief paper, but should be rather obvious, grid parity is an average of costs/prices. It's not a magic number at which all consumers switch. A given consumer may face a price that is higher or lower than that, depending on a good number of factors:

PV costs per watt vary due to many factors including module, inverter, wiring & racking component costs, mounting difficulty depending on roof type or ground conditions, labor costs, and profit margins. Costs per kWh in the first year of production will depend on insolation, tilt, orientation, shading, local soiling conditions, and the many smaller loss factors that affect real system performance. Lifetime costs per kWh produced (on a levelized or other basis) will depend on discount rates or cost of borrowing, investor expectations, module & system degradation, system availability, inverter replacement costs, maintenance, etc. All of these factors vary from site to site, contractor to contractor, product to product, and investor to investor. There may be an “average cost” but there will also certainly be a range.

Similarly, the value of the savings from a PV system on a per kWh basis varies significantly from customer to customer (often even between those on the same rate schedule) usually on both the production and consumption side of the calculation. It will vary on the consumption side because of the customer’s usage patterns with respect to time-of-use electric rates, total consumption on a tiered electric tariff, current demand charges and the customer’s ability to eliminate or reduce demand charges with PV and load management and/or rate schedule switching to a nondemand rate schedule.

And since the parity is also driven by tax incentives (at least in the US case):

Variations across tax status (residential, commercial, nontaxable), residential tax bracket, Alternative Minimum Tax, Corporate vs. Non-Corporate business tax rates, and state tax rates will affect system net cost, and the cost of energy produced from identical systems.

Likewise for the expected return on PV/renewables investment:

There is also a range in customer expectations of an acceptable rate of return that would entice them. This is evidenced regularly in the financial markets all over the world. As interests rise (or are pushed higher), investors move towards money funds, CDs, bonds, and treasuries and away from equities. Within many well-managed portfolios there is usually some diversity among the assets owned. High-risk securities need to be estimated to pay a higher return to be worth the risk, yet investors still put some of their money in “safer” investments for the security. It happens within an individual, and it certainly happens among investors. Some investors won’t touch high-yield “junk” bonds while others love them. The same will be true of how solar is viewed. Some see it as safe enough that the yield is acceptable. Others don’t know enough about it, don’t trust it, and will wait until it becomes safer, or pays a better return before they are attracted. This is the distribution of expectations in action. [...]

They author knows of two anecdotes where a large potential customer could have earned up to 20% Pre-Tax IRR on a large PV investment, but chose to pass because he had another business that could do even better, and it was a business that he understood, unlike PV, which was new to him. The other case was a couple with a modest lifestyle (their energy usage was in Tier 1 & 2 of PG&E’s rates), but their response to the presentation of a 5.6% IRR was, “It’s better then our savings account, let’s do it”. Each of these customers had very different hurdles due to their varying levels of comfort with PV, and their varying desires to earn the highest rate or return they could.

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The Daily Mail article you linked for the costs (which is describing a Stanford study proposing a vision for Green New Deal) is about a massive government investment program that would replace all fossil fuel.

In the U.S., this roadmap—which corresponds to the energy portion of the Green New Deal, which will eliminate the use of all fossil fuels for energy in the U.S.—requires an upfront investment of $7.8 trillion. It calls for the construction of 288,000 new large (5 megawatt) wind turbines and 16,000 large (100 megawatt) solar farms on just 1.08% of U.S. land, with over 85% of that land used for spacing between wind turbines. The spacing land can double, for instance, as farmland. The plan creates 3.1 million more U.S. jobs than the business-as-usual case, and saves 63,000 lives from air pollution per year. It reduces energy, health, and climate costs 1.3, 0.7, and 3.1 trillion dollars per year, respectively, compared with the current fossil fuel energy infrastructure.

I don't know how many PV panels are in those 100MW farms, but for the wind farms:

Most of the commercial-scale turbines installed today are 2 MW in size and cost roughly $3-$4 million installed.

250K of those is basically $1T just for those. And the Stanford study is proposing 5MW ones, which would probably cost double ($2T) etc.

16K solar farms of 100MW is humongous too. Wikipedia has a list of large farms... which is much shorter than even 1K, worldwide. If we take the costs from the Pavagada Solar Park at $1B per 1000MW, we need another $1.6T for the solar farms (and they'd probably cost more to build in the US.) The market of solar panels may be oversupplied, but probably not to the tune of trillions of dollars of overstock...

So if you expect the market to produce the same total replacement, you'd have to wait a fair bit, as clearly some investments are better than others...

Answer 5

I challenge your premise:

Grid parity happens when the renewable energy source is competitive with fossil fuels without government subsidies. It has apparently already been reached by wind and solar power, at least in some parts of the world, in 2014.

The Wikipedia article quoted leaves out the "without government subsidies" from its definition:

Grid parity (or socket parity) occurs when an alternative energy source can generate power at a levelized cost of electricity (LCOE) that is less than or equal to the price of power from the electricity grid.

The LCOE includes the net cost of building, so after subtracting subsidy for building.

As an example of how this can be abused to hide the subsidy, consider The Netherlands. According to a map in said Wikipedia article, The Netherlands is one of the countries for which grid parity is supposed to be true.

However, the Netherlands has a massive subsidy for renewable energy, called "SDE+".

SDE+ is an operating subsidy. Energy producers can receive financial compensation for the renewable energy they generate. It is not always profitable to produce renewable energy as the cost price is higher than the market price. This price difference is the unprofitable part. SDE+ compensates the unprofitable component for some years. The compensation depends on the technology used to create renewable energy.

For Spring 2020, it's 7 cents (euro) per kWh subsidy for new projects. The Dutch government expects that to be the difference between renewable electricity and fossil fuel electricity - so we're far from Grid Parity in the Netherlands.

Given that there is such a huge gap between the claim - grid parity without subsidies - and the actual situation in The Netherlands, this cast serious doubts on the same claim for other countries.

Answer 6

Other than technical issues like storage for nights and cloudy days, it's simply a matter of sunk costs. It may cost the same to build X MW of NEW solar generation as it does for NEW fossil fuel generation, but you aren't in general building new plants. You have the existing fossil fuel infrastructure, so you only have to pay ongoing fuel & maintenance costs.

To put it in more personal terms, a bit of Googling suggests that I could get an off-grid solar system for my house for around $20K. (And I live in a pretty good location for solar.) Or I can, for a small fraction of that, make energy-efficiency improvements that result in me paying less than $50 per month for electricity. So why, as a purely economic decision, would I invest that much money in something that takes 30+ years to pay off?

A similar argument goes for grid-tied solar. Of my $40-$50 monthly electric cost, about $15 is simply for the cost of connecting to the grid and various taxes, meaning $25-$35 actual energy cost, so again, a long payback time.

Answer 7

A couple of other factors:

Lifespan of solar collectors.

Current silicon based solar panels have a lifespan of around 20-25 years, after which the PV parts exhibit degradation from just being exposed to sunlight. A substantial recurring expense, as the collectors are the main cost. Technology may improve that over time, but we must plan for what is available right now.

Practical operating costs.

Both solar and wind face their own climate crisis: renewable power plants are very large, and by necessity exposed to the weather. They can't be located in weatherproof buildings like fuel plants, without invoking a colossal expense.

Excluding unusual weather patterns, both solar and wind face the same issues that any heavy equipment constantly exposed to weather are subject to: corrosion from rain and humidity, and thermal cycling from changes in sunlight and seasonal temperature changes. The sheer size of a wind or solar farm as compared to a fuel plant means those exposure costs will be a much higher component of overall operating costs.

Solar and wind plants located in northern areas face challenges from winter weather, snow and ice accumulation. Again, the huge size of renewable plants and their exposure to the elements means that clearing winter accumulation will be much more expensive than fuel plants.

Unusual weather patterns and natural events pose serious problems for renewable plants, where the scale of the implementation and exposure to the elements makes protecting them against intense weather difficult and expensive. We're talking not about renewable plants built in ideal locations, but where the power is needed, in the amount needed.

Here, the balance between construction cost and survivability leaves a large solar or wind plant vulnerable to rare but very intense weather or other natural events, such as a hurricane/typhoon making landfall, heavy hail storms, earthquakes, or in some areas, tornados. A single unusual catastrophic weather or natural event could devastate a large renewable farm requiring a full rebuild, that the much smaller fuel plants would ride out without damage.

Just being realistic, not pessimistic. Those issues can be addressed, but they will cost more money than current pilot plants built in optimal locations might suggest.

The real vulnerability that renewables face is the taxpayer. They will be asked to fund all of this with higher taxes and higher power costs. If the concept of an all renewable power grid is sold to them based on rosy estimates that don't consider all costs, the tax/ratepayer will be in for an unpleasant surprise when the bill turns out to be quite a bit higher than they were told.

Which will lead to a backlash at the polls, and a reversal of the trend.

The pragmatic view suggests that renewable power plants will follow the all electric vehicle example. In the last few years, EV's have caught up with and are beginning to surpass fuel vehicles in capability and total cost of ownership. We are seeing more widespread adoption of EV's today, not because they are green, but because they are a genuinely better deal.

Thus, when the construction and maintenance costs are brought down on renewable plants and the exposure issues mitigated, all of which are being investigated now, power providers will start turning to renewables to replace worn out fuel plants, not at the prodding of governments, but because they are less expensive to operate.

And we can't overlook the economic stability benefits of less reliance on oil from politically unstable regions, as current events are demonstrating.

Answer 8

tl;dr: This is a misunderstanding. The study is not just about switching current electricity generation to renewable sources, but about replacing all uses of fossil fuels, also for things like motor vehicles and heating.

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You are misunderstanding the study where the "trillions upon trillions of dollars" claims originates, and thus comparing apples to oranges.

The study referred to is probably Impacts of Green New Deal Energy Plans on Grid Stability, Costs, Jobs, Health, and Climate in 143 Countries, Mark Z. Jacobson et al., published in One Earth Volume 1, issue 4 (full text, Standford press release).

The press release describes the roadmaps proposed by the study (emphasis mine):

The roadmaps call for the electrification of all energy sectors, for increased energy efficiency leading to reduced energy use, and for the development of wind, water, and solar infrastructure that can supply 80% of all power by 2030 and 100% of all power by 2050. All energy sectors includes electricity; transportation; building heating and cooling; industry; agriculture, forestry, and fishing; and the military. The researchers’ modeling suggests that the efficiency of electric and hydrogen fuel cell vehicles over fossil fuel vehicles, of electrified industry over fossil industry, and of electric heat pumps over fossil heating and cooling, along with the elimination of energy needed for mining, transporting, and refining fossil fuels, could substantially decrease overall energy use.

In other words:

The study is not only about replacing current electricity generation with generation from renewable sources, but also about converting all current use of fossil fuels to renewable energy sources - including industrial use, motor vehicles and heating.

That is obviously a lot more work than "only" using solar panels instead of coal power plants, thus the high cost estimate.

Answer 9

Capacity of production of materials

There is simply not enough production capacity in the world for renewables at a higher rate than the astounding one that is currently. It will yet be a time before the rate of renewable energy installment is able to catch up to the rate of energy demand increase.

If we discount hydropower, a source which does not grow much (and has been installed since ye olde days) the total capacity of renewables passed 1000GW in 2017, and added 161 GW in 2018. World energy demand rose by almost 300 GW.

The reason for the capacity block are many, and complicated, but the current trade war is certainly pulling its weight. Rare earth metals and solar cells face tariffs and tolls, and not to mention fierce political competition from a coal industry fearing for its livelihood. It all presents a powerful detractor for increased capacity. If the markets were set free to act on their own, the results would certainly be in favor of renewables. But, slowly the trend is changing, and will continue to do so, I hope, if not for anyone else - then at least the coal miners. That is a labor so arduous and dangerous it should go the way of horse-shit-carting - laid to rest among the other peculiarities of history.

Answer 10

Grid parity happens when the renewable energy source is competitive with fossil fuels without government subsidies

"Competitive" and "exclusive" are completely different things. Are bananas competitive with apples? Clearly yes: there are people who buy bananas when they could buy apples. So why do stores sell apples? Because people don't want to buy just one fruit. There is no price at which bananas are going to completely drive apples out of the market, let alone drive out steak.

then wind and solar power has actually become cheaper than fossil fuels in these places by today (2020)

In this context, that's nonsense. Are bananas cheaper than apples? By what metric? Weight? Calories? Vitamin A? Vitamin B? There's no one-to-one conversion between different energy sources. You can't look at a 1MW nuclear, coal, hydroelectric, and PV power plant and say "Those are completely equivalent". If they were, why are there more than one nonrenewable sources of energy? Either coal or nuclear is cheaper. Why don't we use whichever one that is? Same question for trucks, trains, ships, and airplanes. Or wood, cement, steel, and bricks. Or cotton, wool, polyester, and silk. Etc.

Fossil fuel and nuclear plants fill different needs. Fossil fuel plants are much more dispatchable than nuclear plants: you can burn more or less fuel as the demand changes. Nuclear plants have pretty much a constant supply of power, and throttling them doesn't save much money, and can even increase the cost. So it makes sense to build enough nuclear power for your base demand, and then build fossil fuel plants for your peak demand.

Renewable sources tend to be intermittent, so they fill neither the peak nor base demand roles well. There is no magic number where they are "cheaper" than nonrenewables. At each price point, there are going to be some applications where they are more cost effective, and others where they aren't. As their price goes down, there will be more of the former and less of the latter.

Answer 11

It's not just up-front costs; recurring costs are also gargantuan.

Energy storage in particular is extremely expensive with so-called "renewable" energy sources--just one gallon of gasoline or propane stores 33 kWh, the equivalent of roughly 33x 83-Ah 12V lead-acid batteries (not counting the maximum recommended discharge level of 50% for lead-acid batteries, so you'd actually need 66 of them to reach the same level of energy storage as a single gallon of a fossil fuel). This also means fossil fuels vastly more portable than pre-generated electric, which is a considerable constraint when facing the needs to scale energy production and distribution in response to seasonal or other temporary loads.

Figure in your battery production, maintenance and housing costs, and it's pretty apparent that, barring some amazing breakthroughs in storage efficiency of electrical energy, fossil fuels will continue to dominate. There is simply no reasonable way to approach so-called "green energy" without addressing the storage problem.

Daily energy use in an American household now averages above 30 kWh. Much of residential energy use peaks in the evening, after prime sunlight harvesting time.

So if you're up to the task to manufacture, transport, store, maintain and regularly replace on average at least 30 lead-acid batteries per American household, plus satisfy the commercial and military needs, plus all of the generator equipment and failsafes to provide needed electricity in case of under-abundance of solar, wind, or hydro power, all for considerably and sustainably less than we can already burn coal in a plant on-demand for customers, maybe we're talking about a bargaining chip, but that bargaining chip would still need to be played successfully in the real world of economics.