Is Solar the Better Buy?


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Is Solar the Better Buy?

  1. 1. Solar and Nuclear Costs —The Historic CrossoverSolar Energy is Now the Better Buy $ COST $ 1998 2010 2015 John O. Blackburn Sam Cunningham July 2010 Prepared for
  2. 2. CONTENTSSummary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3The Backdrop for Change . . . . . . . . . . . . . . . . . . . . . . . . . 5The Sun is Changing the Game . . . . . . . . . . . . . . . . . . . . . 5Who Pays for New Nuclear?. . . . . . . . . . . . . . . . . . . . . . . . 7Witnessing the Crossover . . . . . . . . . . . . . . . . . . . . . . . . . . 9Jobs and Manufacturing — in North Carolina . . . . . . . . . 10Is the Public Ahead of the Utilities? . . . . . . . . . . . . . . . . . 10Financing Solar Equipment . . . . . . . . . . . . . . . . . . . . . . . . 11What About Subsidies? . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Appendix A: Methodology . . . . . . . . . . . . . . . . . . . . . . . . 17Appendix B: Nuclear plant cost estimatesand upward revisions per reactor . . . . . . . . . . . . . . . . . . 18John O. Blackburn, PhD, Professor Emeritus of Economics and former Chancellor, Duke University. Dr. Blackburn has conducted research into energyefficiency and renewable energy over a period of more than thirty years. He has authored two books and numerous articles on the future of energy, andhas served on the Advisory Boards of the Florida Solar Energy Center and the Biomass Research Program at the University of Florida. He has testifiedbefore the NC Utilities Commission in several utility dockets on electricity supply and demand, energy efficiency, and renewable energy.Sam Cunningham, Masters of Environmental Management candidate, Duke University. Mr. Cunninghams professional and academic interests arefocused on policy applications of natural resource economics. He is an Economics and Environmental Studies graduate of Emory University.NC WARN: Waste Awareness & Reduction Network is a member-based nonprofit tackling the accelerating crisis posed by climate change — alongwith the various risks of nuclear power — by watch-dogging utility practices and working for a swift North Carolina transition to energy efficiency andclean power generation. In partnership with other citizen groups, NC WARN uses sound scientific research to inform and involve the public in keydecisions regarding their well-being. NC WARN: Waste Awareness & Reduction Network
  3. 3. SUMMARYSolar photovoltaic system costs have fallen steadily for decades. They are projected to fall evenfarther over the next 10 years. Meanwhile, projected costs for construction of new nuclear plantshave risen steadily over the last decade, and they continue to rise.In the past year, the lines have crossed in North Carolina. Electricity from new solar installationsis now cheaper than electricity from proposed new nuclear plants.This new development has profound implications for North Carolina’s energy and economic future.Each and every stakeholder in North Carolina’s energy sector — citizens, elected officials, solar pow-er installers and manufacturers, and electric utilities — should recognize this watershed moment. Solar-Nuclear Kilowatt-Hour Cost Comparison Solar-Nuclear Kilowatt-Hour Cost Comparison 35 35 NUCLEAR 30 30 25 25 2010 Cents per kWh2010 Cents per kWh 20 20 15 15 10 10 5 5 SOLAR PV 0 0 1995 2000 2005 2010 2015 2020 2025 1995 2000 2005 2010 Year 2015 2020 2025 Year Solar PV Nuclear Solar Trendline Nuclear Trendline Solar PV Nuclear Solar Trendline Nuclear TrendlineFigure 1: The Historic Crossover — Solar photovoltaic costs are falling as new nuclear costs are rising.1The Solar PV least-squares trendline is fit to data points representing the actual cost of producing a kilowatt-hour in the yearshown through 2010 and for cost projections from 2010 to 2020. The nuclear trendline is fit to cost projections made in the yearshown on the x-axis of eventual kilowatt-hour cost if projects reach completion. See complete methodology in Appendix A.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 3
  4. 4. State law requires that the development of the electricity system follow a “least-cost” path andthat available resources be added as necessary. Less expensive resources are to be added first,followed by more expensive ones, provided that system reliability is maintained. Energy efficien-cy, wind power, solar hot water (displacing electric water heating) and cogeneration (combinedheat and power), were already cheaper sources than new nuclear plants. Thisreport illustrates that solar photovoltaics (PV) have joined the ranks of lower- Here in North Carolina,cost alternatives to new nuclear plants. When combined, these clean sourcescan provide the power that is needed, when it is needed. solar electricity, onceThe state’s largest utilities are holding on tenaciously to plans dominated by the most expensive ofmassive investments in new, risky and ever-more-costly nuclear plants, while the “renewables,” hasthey limit or reject offers of more solar electricity. Those utilities seem oblivi-ous to the real trends in energy economics and technology that are occurring become cheaper thanin competitive markets. electricity from newEveryone should understand that both new solar and new nuclear power will nuclear plants.cost more than present electricity generation costs. That is, electricity costswill rise in any case for most customers, especially those who do not institute substantial energyefficiency upgrades. Power bills will rise much less with solar generation than with an increasedreliance on new nuclear generation.Commercial-scale solar developers are already offering utilities electricity at 14 cents or less perkWh. Duke Energy and Progress Energy are limiting or rejecting these offers and pushing aheadwith plans for nuclear plants which, if ever completed, would generate electricity at much highercosts — 14–18 cents per kilowatt-hour according to present estimates. The delivered price tocustomers would be somewhat higher for both sources.It is true that solar electricity enjoys tax benefits which, at the moment, help lower costs to cus-tomers. However, since the late 1990s the trend of cost decline in solar technology has been sogreat that solar electricity is fully expected to be cost-competi-tive without subsidies within the decade. Nuclear plants likewisebenefit from various subsidies — and have so benefitted through-out their history.Now the nuclear industry is pressing for more subsidies. Thisis inappropriate. Commercial nuclear power has been with usfor more than forty years. If it is not a mature industry by now,consumers of electricity should ask whether it ever will be com-petitive without public subsidies. There are no projections thatnuclear electricity costs will decline.Very few other states are still seriously considering new nuclearplants. Some have cancelled projects, citing continually risingcosts with little sign of progress toward commencing construction.Many states with competitive electricity markets are developing An average North Carolina homeowner cantheir clean energy systems as rapidly as possible. North Carolina now have a solar electricity system installedshould be leading, not lagging, in the clean energy transition. for a net cost ranging from $8,200 to $20,000We call on Governor Perdue, the General Assembly, the Energy or more, depending on how much electricityPolicy Council and the N. C. Utilities Commission to investigate the homeowner wants to generate.these matters and see for themselves that a very important turn- Photo courtesy NOVEM (Netherlands Agency for Energying point has been reached. and the Environment).SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 4
  5. 5. THE BACKDROP FOR CHANGE burning a fuel for a pri-Electricity supply systems all over the world mary use, then using theare facing the most rapid changes in their op- leftover heat for othererating environments and technologies since purposes. Industries usingthe formative years of the industry. A tide of process heat have foundchange is sweeping over the industry, one that this beneficial for years.challenges industry managers to stay abreast Commercial buildings withof these developments or risk presiding over heating and cooling loadscostly anachronisms. The era of “build plants, now also find it economi-sell power” is over; the rapid changes under- cal. Unfortunately, this Wind energy can complementway require a more agile, many-faceted ap- highly efficient technology solar to offset the intermittencyproach to meeting energy demand in a respon- is under-utilized in North of each technology. Several statessible manner. Carolina. By comparison, are developing off-shore wind coal and nuclear plants are along the eastern seaboard.For thirty years, increasing the efficiency of extremely inefficient; theyelectricity use has been known to be a faster waste large amounts of heat — two-thirds of theand cheaper alternative to building new power energy content of the fuels — and consumeplants. Energy efficiency advances are work- enormous quantities of water in the their way into the marketplace and intoconsumer habits so that electricity demand ishardly growing at all. The accelerated adop- THE SUN IS CHANGING THE GAMEtion of energy-saving methods in the building By 2009, energy efficiency methods, combinedindustry, in the manufacture of appliances heat and power, wind generation and solar wa-and lighting, and in retrofitting existing build- ter heating had all challenged the traditionalings means that annual electricity demand in business model of “build plants; sell power”homes, businesses and public buildings soon favored by the big North Carolina utilities. Allwill begin a slow decline.2 The partial electrifi- are cheaper and can be put into service muchcation of transportation will open new markets faster than building new fossil and nuclearfor electricity, but when used in vehicles, elec- power plants.tricity is much more efficient than fossil fuels. Now, in 2010, comes the final blow to the oldThe overall additional demand will be modest,3 way of doing business for utilities. In manyand can be accommodated at off-peak times, places around the world, and here in North Car-or even better, powered by solar installations. olina, solar electricity, once the most expensiveThe emergence of wind power as a relatively of the “renewables,” has become cheaper thancheap source of electricity has further compli- electricity from new nuclear plants.cated life for the traditional generating indus- Figure 2 tracks the downward trend in solar PVtry. Those who think it too intermittent to be electricity costs from 1998 to 2008. Accordinguseful have had to revise their opinions as suc- to researchers at the Lawrence Berkeley Na-cessively larger amounts of wind power have tional Laboratory, solar photovoltaic systembeen absorbed into many utility systems. Care- costs declined from $12 per installed watt inful modeling has shown that penetrations of 1998 to $8 in 2008 on average — a one-third20%, climbing to 30%, of overall electricity us- decline in ten years. In 2009 and 2010, costsage can be accommodated — mainly by rear- declined more rapidly as module prices fellranging the management of existing generation sharply, bringing the 12-year system cost de-equipment rather than by building extensive cline to 50%. At mid-2010, based on figures pro-backup facilities.4 vided by North Carolina installers, large sys-Combined heat and power (cogeneration) has tems can produce electricity at 12–14 cents orlong been a means of generating electricity by less per kilowatt-hour, while the middle rangeSOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 5
  6. 6. for residential systems comes in at 13–19 cents 429 MW was installed, Dramatic changes face per kilowatt-hour, hence the average cost with California and New shown in Figure 1 of 16 cents.5 The possibility Jersey as the leading the utilities as efficiency- of selling renewable credits tilts the advantage states. North Carolina in- conservation, combined farther in the direction of solar electricity. stalled 8 MW. heat and power, and Experienced industry observers see photo- Cumulative worldwide voltaic system costs continuing to decline in installations at the end of most solar power are the coming decade as the industry — from 2009 passed the 22,000 located in homes or cell makers to installers — expands at a re- MW mark. Germany, cord pace and moves rapidly along the typical Spain and Japan led in businesses, not at industrial “learning curve.” Figure 1 illustrates total installed capacity centralized power plants. these projections from 2010 through 2020. with 9000 MW in Germa- Present mid-range costs are 14–19 cents per ny alone. The U. S figure stood at 1653 MW of kilowatt-hour for rooftop solar electric sys- which 1102 MW was in California and 128 MW in tems, and approximately 14 cents for commer- New Jersey. North Carolina’s share was 13 MW.7 cial-scale systems. Sector-wide costs in 2020 The PV market is poised to explode worldwide are projected to be 7.5 cents per kilowatt-hour.6 as a “least-cost” way to generate electricity. Similarly, solar water heating has an “avoided By comparison, no U.S. nuclear power plants cost” advantage over heating water with elec- have been put into service in many years. Most tricity from a new nuclear plant. Water heating proposed reactors are in the range of 1100 to accounts for 15–25% of a typical homeowner’s 1200 MW. power bill. The dramatic change facing the utility indus- In 2009 more than 7,000 megawatts (MW) of try is highlighted by the observation that ef- solar generating capacity was installed in the ficiency gains, combined heat and power, and world, of which half was in Germany. In the U.S., most of the solar supply is located at homes, $16 Capacity-Weighted Average $14 Simple Average +/- Std. Dev.Installed Cost (2008$/WDC ) $12 $10 $8 $6 $4 $2 $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 n=39 n=180 n=217 n=1308 n=2489 n=3526 n=5527 n=5193 n=8677 n=12103 n=13097 0.2 MW 0.8 MW 0.9 MW 5.4 MW 15 MW 34 MW 44 MW 57 MW 90 MW 122 MW 197 MW Installation Year Figure 2: Falling installed cost for solar PV, 1998–2008 (Wiser, 2009). These installed costs per watt of capacity, reported by the Lawrence Berkeley National Laboratory, are used to compute kWh costs from 1998–2008 in Figure 1. SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 6
  7. 7. businesses and public buildings, and is not beginning. Electricity from new nuclear plants,sourced from centralized power plants. The if constructed, will continue to raise ratespower industry and the energy economy as since electricity from nuclear plants is nowa whole are being driven toward this “distrib- more costly than alterna-uted” power model. tive sources — wind, solar North Carolina needs and combined heat and power generation. Nuclear a “nuclear cost cap,”WHO PAYS FOR NEW NUCLEAR?A number of tradition-oriented utility execu- power is much more costly not the one now in than continued efficiencytives have persisted in pursuing nuclear plant gains in electricity use. place for solar power.licenses. Some have even begun to raise ratesin the process, as Duke Energy did in 2009 in The 2007 North Carolina legislation which es-order to cover “pre-development” costs of its tablished renewable and efficiency standardsproposed Lee nuclear plant in South Carolina. contains a provision to protect consumers from a too-rapid rise in rates that might re-Utility CEOs are well aware of the enormous sult from developing “expensive” renewablerisks and financial commitments of this busi- sources like solar electricity — a “solar costness strategy. That is why those who are still cap”.10 It appears that what is needed insteadconsidering new nuclear plants are seeking is a “nuclear cost cap”. We are being asked toto shift costs to taxpayers through federal pay up front for nuclear electricity that we mayloans and loan guarantees, and to electricity never get.consumers through state legislation allowingimmediate recovery of planning and financ- The North Carolina Utilities Commissioning charges through electric rates.9 In normal should instead require the utilities to use rate-circumstances, they would accumulate these payers’ money for new solar electricity fromcosts and recover them in rates once plants are which consumers can benefit immediately.completed and actually producing electricity. Since the much-heralded “nuclear renaissance”The economic irony is that rising rates inhibit began during the past decade, cost estimatesthe projected demand on which the supposed for new nuclear plants have risen dramatical-need for the plants is based. This is only the ly. Projects first announced with costs in theFigure 3: Residential and Commercial cost breakdown for solar PV in 2005 $ per watt installed,2006–2015, U.S. Department of Energy.8Total installed costs continue to decline for U.S. residential and commercial solar photovoltaic electricity. Crystalline siliconmodule costs, which are the most significant portion of system cost, are expected to bottom-out around one dollar.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 7
  8. 8. $2 billion range per reactor have seen several 22 cents per kilowatt-hour. This is twice therevisions as detailed planning proceeds and price North Carolina residential customersnumerous design and engineering problems now pay to the big utilities.have emerged. The latest price estimates are In this analysis we follow the work of Markin the $10 billion range per reactor. Moreover, it Cooper, Senior Fellow for Economic Analy-will be at least six years before any plant could sis at the Vermont Law School’s Institute forbegin operating, and most projects are 10 to Energy and the Environment (Cooper, 2009).12 years from possible completion. The West- After examining numerous utility estimatesinghouse AP 1000 reactor design, used in most and those of other analysts, he concludes thatcurrent license applications, was being revised new nuclear plants will produce electricity atfor the seventeenth time by September 2009. costs of 12–20 cents per kilowatt-hour (with(See Appendix B, Nuclear plant cost estimates a mid-range figure of 16 cents) at the plantand upward revisions per reactor.) site, before any transmission charges. PlantSince capital costs represent some 80% of nu- cost escalations announced by utilities sinceclear electricity’s generation costs, projected Cooper’s paper was published suggest that hiskilowatt-hour prices have skyrocketed accord- lower figure is optimistic. Accordingly, we useingly. Studies which showed expected elec- here a range of 14–18 cents, with a midpointtricity costs of 7 cents per kilowatt-hour have of 16 cents. The 18 cents upper figure makesbeen updated to show nuclear electricity costs our findings somewhat more conservative. Asexceeding 18 cents per kilowatt-hour. Trans- shown in Figure 1, by the time plants could bemission and distribution costs would raise the built prices are likely to be much higher.delivered costs to residential customers toFigure 4: Nuclear power generation cost — operating reactors compared to proposed reactors(Cooper, 2009).SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 8
  9. 9. Clearly, new nuclear plants would generate wind doesn’t blow all the time.” That argu-power at a higher cost than solar electricity. ment, and indeed the distinction between in-These costs have just reached this crossover termittent sources and baseload sources, ispoint in North Carolina in 2010, while nuclear rapidly becoming obsolete. Fortunately, solarcosts continue to rise and solar costs continue energy is strongest during periods of daily andto fall. seasonal peak demand, especially when sup- plemented by ice storage in air conditioningWe further project that nuclear power from plants would deliver residential electricityat 22 cents per kilowatt-hour and commercial When solar generated electricity is added to aelectricity at 18–19 cents per kilowatt-hour, af- power grid with wind, hydroelectric, biomasster adding transmission and distribution costs. and natural gas generation, along with exist-Homeowners and businesses could readily ing storage capacity and “smartchoose on-site solar electricity as a cheaper grid” technology, intermittency Homeowners andalternative to new nuclear power. becomes a very manageable is- sue. Numerous studies in various businesses couldWITNESSING THE CROSSOVER parts of the U.S. and elsewhere readily choose — including most recently North on-site solar elec-Solar electricity has numerous advantages Carolina — have demonstratedother than cost. Rooftop solar can be installedin a few days. Small incremental gains in total this point.13 tricity as a cheapergenerating capacity start producing electric- Indeed, even the head of the alternative to newity immediately. One does not have to wait Federal Energy Regulatory Com- nuclear power.ten years for huge blocks of new capacity to mission now dismisses the needcome online. Solar panels leave no radioac- for new coal and nuclear power plants due totive wastes. They do not consume billions of advances in wind, solar and smart grid tech-gallons of cooling water each year. There are nology that mitigate problems of distance andno national security issues with solar installa- intermittency long associated with wind andtions. An accident would be a small local affair, solar power.14not a catastrophe.Utilities like to argue that solarPV and wind are not a substitutefor baseload power from coal andnuclear plants because “the sundoesn’t shine all the time and theFigure 5: Solar photovoltaicresource potential.11In the Southeast, nuclear utilitiessometimes claim that our climateis not conducive to solar.12 How-ever, this region is second only tothe Southwest in solar potential.Note also that New Jersey is aU.S. leader in implementing solarpower, even though it has a lessfavorable solar resource.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 9
  10. 10. The utilities’ long range forecasts indicate that By comparison, two new reactors proposed forneither Duke Energy nor Progress Energy pro- the Shearon Harris plant by Progress Energypose to open nuclear plants until after 2020.15 would concentrate jobs around Wake County,This window of time can readily allow proven and Duke Energy’s proposed Lee Station reac-energy-saving programs, customer cogenera- tors would generate jobs in Cherokee County,tion and renewable energies to further develop South Carolina although North Carolina cus-toward providing most of the state’s electricity tomers would absorb 70% of the cost and risk.19needs. IS THE PUBLIC AHEADJOBS AND MANUFACTURING — OF THE UTILITIES?IN NORTH CAROLINA The North Carolina public seems to under-Employment in North Carolina has more to gain stand the many advantages of renewable en-from investment in solar electric and solar wa- ergy and efficiency investments. A recent pollter installations than from the same amount of by Elon University showed that 80% of theinvestment in nuclear plant construction and public favored the development of solar andoperation — by a factor of three.16 The solar wind power.20power industry is poised to bring in new pro-duction facilities and create good jobs distrib- Regrettably, neither Duke Energy nor Prog-uted across the state. All that is required is for ress Energy seem interested in any additionalthe N.C. Utilities Commission to enforce its own solar purchases beyond the miniscule (two-“least cost” requirements. tenths of one percent) and easily-reached solar requirement of North Carolina’s Renew-Environment North Carolina, citing data from able Energy and Energy Efficiency Portfoliothe U.S. and abroad, estimates that raising the Standards enacted in Senate Bill 3 instate’s solar power production to 14% of total 2007. That “set-aside” for solar had A recent pollelectricity by 2030 would create 28,000 perma- been intended as a minimum level that would help the industry devel- showed thatnent high-quality jobs.17 Encouraging the manu-facturing of solar components in-state — by ex- op, but the utilities have apparently 80% of thetending manufacturing tax credits, for example interpreted it as a maximum level be- yond which they need not go. Solar public favored— would raise the number of jobs created inthis scenario to over 40,000. All told, the so- installers complain that Duke Energy the develop-lar industry could provide billions of dollars of has turned down a host of competi- tively priced proposals, and that ment of solarpositive economic impact for North Carolina.Nationwide, 6,000 high-quality jobs were cre- Progress Energy generally considers and wind power.ated in the solar sector in 2007, according to only small-scale projects to meet itsthe Solar Energy Industries Association. More 0.2% solar requirement.21 The utilities appar-than 100 currently planned commercial-scale ently prefer to pursue more expensive powersolar energy projects represent potential for from new nuclear plants.roughly 56,000 megawatts of electric power, We must be clear that new solar and nuclearover 100,000 construction jobs and 20,000 per- electricity costs are both above most presentmanent jobs.18 North Carolina electricity rates. Rates from theThe federal 30% tax credit for installing solar state’s two largest utilities, Duke Energy andpower — effective through 2016 — is expected Progress Energy, are 10.5 cents per kilowatt-to create 440,000 permanent jobs in the U.S. hour for residential customers and 6–7 centsand spur $325 billion of private investment in for commercial customers, while customers ofthe solar industry (Navigant, 2008). municipal systems and cooperatives alreadySOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 10
  11. 11. pay rates as high as 18 cents. Most rates will goup; that is unavoidable, but they will rise muchless in an efficiency-solar-wind electricity futurethan they will in a nuclear-electricity future.FINANCING SOLAR EQUIPMENTEven though long-term energy savings beginimmediately with rooftop solar energy, anupfront investment is required. Would-be so-lar buyers need financing; they need accessto loans at reasonable rates of interest andmonthly payments that are manageable. Todate, some of the best financing programs Various programs are growing around the nation thatare the plans under which local governments allow rooftop solar customers essentially to pay forborrow at tax-exempt rates, lend those funds their systems through monthly energy homeowners for solar equipment installa- Photo courtesy Evergreen Power, Ltd.tions, then collect the periodic payments withthe tax bill. Should the homeowner sell the and businesses can therefore self-supplyproperty before the loan is paid off, the solar a high percentage of their total electricitysystem obligation remains with the property. needs. Although on-site storage is not in-This arrangement, the PACE (Property As- cluded in prices shown in this report, somesessed Clean Energy) loan, originated in Berke- homeowners choose to add batteries so thatley, California in 2008 and has spread rapidly solar electricity can be used when the sun isacross the country since then. In August 2009 not shining.the North Carolina General Assembly gave au-thority for local governments to use this planbut none has yet been announced.22 WHAT ABOUT SUBSIDIES?The emerging solar industry in North Carolina As pointed out in the summary above, solarmust credit the constructive role played in re- and nuclear costs given here reflect the costscent years by NC GreenPower, an independent that would actually be paid by consumers.nonprofit organization approved by the NC They are net of a variety of financial incentivesUtilities Commission that supports solar PV for each technology. This is as close as oneand other renewable energies by providing a can get to an “apples to apples” comparisonmarket for small-scale residential generation. (see note 6). In the solar case, the incentivesOwners of small (less than 10 kW) solar PV are federal and state tax credits. Nuclear pow-systems can sell their electricity to the grid at er incentives or subsidies are rarely collateda guaranteed subsidized rate of 19 cents per and published, so they are difficult to expresskilowatt-hour. This guarantee has not only cre- as costs per kilowatt-hour. Among the nuclearated demand for PV systems from a first wave subsidies:of consumers, it has also helped small-system -owners secure financing by reducing the vari- surance against catastrophic accidents. Theability and duration of system payback. Price-Anderson act caps the liability for anAn arrangement in some states allows all accident at a level that now totals approxi-solar users to feed excess power to the grid, mately $11 billion, which would be distrib-then buy it back at night at the same retail uted among all reactor owners. Federal stud-rate. In this way, the grid becomes an impor- ies estimate that the damage from non-worsttant storage mechanism, and many homes case accidents could exceed $500 billion.23SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 11
  12. 12. competition by clean technologies that are two decades to license the Yucca Mountain now cheaper. For example, Entergy CEO Wayne repository for used commercial fuel rods, Leonard, in explaining but in 2010 the Obama administration is at- why he suspended license The utilities are turning tempting to cancel the project. That wasted applications to build four sum was accumulated through utility bills, new reactors in Missis- down or limiting solar so it was included in the kilowatt-hour cost sippi and Louisiana, said proposals priced at rates of nuclear power. To date there are no cred- there are too many risks ible plans or cost estimates for managing the utility cannot control, lower than power from this highly radioactive waste for thousands especially uncertainty in new nuclear plants. of years, but much or all of the outlay will be construction costs.27 borne by the federal taxpayer. Still, many utilities hope to build new nuclear - plants — mostly with public money: quest includes $1.8 billion for nuclear power — 44% of all energy R&D. This amount is bill included $18 billion in new subsidies, in- lower than in previous years, but high for a cluding loan guarantees, to incentivize utili- decades-old industry that operates so effi- ties to seek licenses for new nuclear plants. ciently, according to its supporters.24 This year the Obama administration wentThe nuclear industry, well aware of the eco- several steps farther, upping the loan guar-nomic and financial disasters of the 1980s, al- antee total to $54 billion, and quietly agree-ready has successfully transferred some costs ing to even lend taxpayer funds for Plantand risks to consumers. It will not proceed Vogtle. The Georgia plant might become thewithout federal loans, or at least loan guaran- first project to receive a license — possiblytees, for the enormous borrowing that would late in 2011 — to construct and operate abe necessary. This is because the financing in- new plant.stitutions, “Wall Street” in the popular press,will not lend for nuclear projects without tax-payer backing. This risk transfer is necessary new analysis conducted for Friends of thedue to scores of project cancellations and loan Earth shows that tax breaks totaling $9.7 bil-defaults experienced during the first genera- lion to $57.3 billion (depending on the typetion of reactors.25 and number of reactors) would come on top of proposed subsidies totaling $35.5 billionCredit rating agencies are weighing in on theuncertainty that nuclear development projects in the Kerry-Lieberman bill. If this bill suc-will convert mountains of debt into viable in- ceeds, nuclear plant owners might essential-vestments. A 2009 Moody’s report warns of ly bear no risk.28“future rate shocks” for electricity consumers -resulting from “bet-the-farm” nuclear endeav- eastern states in passing legislation that al-ors.26 The Institute for Southern Studies reported lows power companies to pre-charge cus-that as of July 2009 two of the 17 proposed tomers for some of the costs of licensingnuclear projects have had their construction and building nuclear plants. Duke Energybonds rated as “junk” status and 13 others are has signaled that it will soon seek even morerated as just one step above junk. transfer of financial risks to North CarolinaMost utilities have cancelled or delayed proj- customers, apparently through additionalects due to soaring cost estimates, myriad de- Construction Work in Progress measuressign problems, growing uncertainty about li- that create an automatic pass-through ofcensing and construction — and increasing costs to consumers without Duke Energy orSOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 12
  13. 13. Progress Energy having the costs reviewed CONCLUSION in a rate case before the utilities commission. Many U.S. utilities are finding solar and windNorth Carolina’s current approach does not energy to be profitable and preferable to risk-fare well in comparison with that of other ing investments in new nuclear facilities. Instates. Twenty states have renewable portfo- fact, Duke Energy considers itself a leader inlio standards of 20% or more, compared to our clean technologies, and indeed is developing12.5%. The following examples are from the significant solar and wind energy projects —Database of State Incentives for Renewables but those projects are in other states where& Efficiency.29 Duke must compete for market share. For many years the U.S. nuclear power indus- supplemented by an efficiency goal of 30% try has been allowed to argue that “there is by 2030. no alternative” to building new nuclear plants. This is just not true. It is time for the news me- dia and the public to see the compelling evi- 2010 or 2011, has an executive order, now dence that clean, efficient energy is the path about to be reinforced by legislation, to forward and to make sure their elected repre- raise this to 33% by 2030. This commitment sentatives hear this message repeatedly. to renewable energy, added to existing hy- droelectric output, will bring the state’s North Carolina faces an opportunity to join the critical global transition to clean, affordable en- renewable electricity to nearly half of total ergy. Building new nuclear plants would com- generation. mit North Carolina’s resources in a way that impedes the shift to clean energy for decades. 20% goal, which was then raised to 30% by 2020. We must make decisions now that allow us to look back at the spring of 2010, when solar en- ergy became cheaper than new nuclear plants, called for 3200 MW of wind capacity and as the time when North Carolina changed its 1500 MW of solar capacity — all by 2020. In future. 2010, the solar requirement was increased to approximately 4000 MW. goal of 50%. 30% share for renewable electricity by 2015. 2017.One reason North Carolina and most south-eastern states are lagging is that their utilitiesare granted monopoly service areas, whichexclude competition and create captive cus-tomer bases. In such “regulated” states, utili-ties are succeeding with legislative efforts totransfer the financial risks of nuclear plant con-struction to ratepayers, as noted above.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 13
  14. 14. NOTES1 Cooper, Mark. “The Economics of Nuclear Reac- Kerastas, John. “Solar: The race for the lowest tors: Renaissance or Relapse?” Institute for Energy cost per watt.” Green Manufacturer. 2010. 10 June and the Environment, Vermont Law School. June 2010 < 2009. renewable-energy-suppliers/solar-the-race-for-the- lowest-cost-per-watt>. Wiser, Ryan, Galen Barbose, Carla Peterman, and Naim Darghouth. “Tracking the Sun II: The Installed 2 California began a serious effort to increase energy Cost of Photovoltaics in the U.S. from 1998–2008.” efficiency in the 1970s and never stopped. As Lawrence Berkeley National Laboratory, October a result, its per capita electricity consumption 2009. < has barely changed in the years since. The aver- 2674e.pdf>. age annual efficiency gain is around 1.5%. Other states, starting later, have achieved similar results. Projected solar electricity costs, 2010 to 2020, Nationwide, building codes are making commercial were based on: and residential buildings more energy-efficient. Bradford, Travis. Solar Revolution: The Economic Federal, state and local government buildings are Transformation of the Global Energy Industry. MIT receiving special attention. Stimulus funds have Press, September 2006. recently been applied to weatherization projects. Denholm, Paul, Robert M. Margolis, and Ken North Carolina’s building code decreased the elec- Zweibel. “Potential Carbon Emissions Reductions tricity consumption of new residences by 19% and from Solar Photovoltaics by 2030.” Tackling Climate further tightening measures are nearing adoption. Change in the U.S.: Potential Carbon Emissions Reduc- 3 The Chevrolet Volt, by no means the most energy- tions from Energy Efficiency and Renewable Energy efficient vehicle, is expected to go five miles on by 2030. Ed. C. F. Kutscher. CH-640-41271. Boulder, 1 kilowatt-hour — the equivalent of 180 miles per CO: American Solar Energy Society, 2007. 91-99. gallon. International Energy Agency. “Technology Road- 4 Iowa now generates 17-20% of its electricity from map, Solar Photovoltaic Energy.” May 2010. wind turbines. Some of this capacity is sold Teske, Sven, Arthouros Zervos, Christine Lins, and out-of-state and the rest is integrated into the state Josche Muth. “Energy [R]evolution: A Sustainable energy mix. Energy Outlook.” European Renewable Energy Zavadil, Robert. “National Transmission Issues Council and Greenpeace International. June 2010. for Wind: A Perspective.” EnerNex Corporation. 15 June 2010 < Nebraska WindPower 2009, 9-10 November, 2009. content/usa/press-center/reports4/greenpeace- < energy-r-evolution.pdf>. %20Track%20A/Transmission%20issues/Zavadil/ United States Department of Energy Solar Energy National_Wind_Transmission_Issues_-_A_Perspec- Technologies Program. “Solar Energy Industry tive_-_RZ.ppt>. Forecast: Perspectives on U.S. Solar Market GE Energy, “Western Wind and Solar Integration Trajectory.” 27 May 2008. 11 June 2010 Study.” Prepared for The National Renewable <>. Energy Laboratory. May 2010. <http://www.nrel. Also consulted were: gov/wind/systemsintegration/pdfs/2010/wwsis_ Appleyard, David. “PV Global Outlook: A Bright final_report.pdf>. Future Shines on PV.” Renewable Energy World, 5 Wiser, Ryan, et al. “Tracking the Sun II: The 4 June 2010. 14 June 2010 <http://www.renew- Installed Cost of Photovoltaics in the U.S. from 1998-2008.” Lawrence Berkeley National Labora- pv-global-outlook-a-bright-future-shines-on-pv>. tory, Environmental Energy Technology Division. “China Still Holds Commanding Lead in Global October 2009. Clean Tech Race.” 16 March 6 Solar PV cost per watt or per kilowatt figures are 2010. 7 June 2010 < translated into kilowatt-hour costs with respect to news/2010/03/16/china-holds-commanding-lead- the following parameters: 18% capacity factor, 25- global-cleantech-race>. year period of cost amortization, and 6% borrowing Helman, Christopher. “A Competitive Boost for rate. Both the 30% Federal and 35% North Carolina Solar Energy.” 25 November 2009. tax credits have been applied where appropri- 7 June 2010 < ate. See Appendix A for a thorough explanation of solar-power-prices-business-energy-electricity. methodology. html>.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 14
  15. 15. 7 Solar Energy Industry Association. “U. S. Solar with more efficient use of all sources of electricity. Industry Year in Review.” 2009. “We have the potential in the country, we just have to go out and get it,” Wellinghoff said at a brief- Solarbuzz. “2010 Global PV Industry Report.” 2010. ing with reporters at the American Wind Energy REN21: Renewable Energy Policy Network for the Association’s conference in Chicago, monitored by 21st Century. “Renewables Global Status Report.” telephone. 2009 15 “Progress Energy Carolinas Integrated Resource8 United States Department of Energy, Solar Energy Plan.” Progress Energy Carolinas, Inc. 1 September Technologies Program. “Solar Energy Industry 2009. Forecast: Perspectives on U.S. Solar Market “Duke Energy Carolinas Integrated Resource Plan Trajectory.” 27 May 2008. (Annual Report).” Duke Energy Carolinas, Inc.9 The rate increase that Duke Energy sought in its 1 September 2009. 2009 filing was approved in part and took effect 16 Garrett-Peltier, Heidi. “$1 Million = More jobs for on 1 January, 2010. The costs sought to be recov- green industries.” Political Economy Research ered contained $160,000,000 related to the two Institute, University of Massachusetts Amherst. proposed reactors at the William Lee site in South Carolina. 17 Madsen, Travis and Elizabeth Ouzts. “Working With the Sun: How Solar Power Can Protect North10 N.C. Session Law 2007-397, Senate Bill 3. Carolina’s Environment and Create New Jobs.”11 United States Department of Energy, National Environment North Carolina, Research & Policy Renewable Energy Laboratory. “Solar Photovoltaic Center. May 2010. 11 June 2010 <http://www. (PV) Resource Potential.” 29 April 2003. 9 June 2010 < ca809d139d551c92990e082edc6e4b15/Working- ables/ilands/fig11.html>. with-the-Sun.pdf>.12 Newkirk, Margaret. “Solar industry challenges 18 Navigant Consulting, Inc. “Economic Impacts of Georgia Power.” The Atlanta Journal-Constitution. Extending Federal Solar Tax Credits.” 15 Septem- 13 June 2010. 21 June 2010 < ber 2008. 22 June 2010 < business/solar-industry-challenges-georgia- pdf/Navigant%20Consulting%20Report%209.15.08. 548016.html>. pdf>.13 Eastern Wind Integration and Transmission 19 Duke Energy serves approximately 2.4 million Study,” prepared for the National Renewable customers across 24,000 square miles of North Energy Laboratory, Enernex Corporation. Carolina and South Carolina. Of this total, roughly January, 2010. 70% of Duke Energy’s ratepaying customers reside “Western Wind and Solar Integration Study,” in North Carolina. prepared for the National Renewable Energy 20 Elon University Poll. 1 March 2010. 21 June 2010. Laboratory, GE Energy. May, 2010. < Blackburn, John. “Matching Utility Loads with elonpoll_data_tables_3_1_10.pdf>. Solar and Wind Power in North Carolina: Dealing 21 Downey, John and Susan Stabley. “Duke Energy’s with Intermittent Electricity Sources.” Institute for solar effort clouding growth?” Charlotte Business Energy and Environmental Research. March 2010. Journal 28 May 2010, 1+. Similar studies are underway at Stanford Univer- 22 “North Carolina PACE Financing.” PACE Financ- sity and in Europe. ing — PACE Program Information. 2010. 17 June14 O’Grady, Eileen. “U.S. utilities, regulator disagree 2010 < on generation.” Reuters. 6 May 2009. 23 June 2010 north_carolina>. < 23 Brookhaven National Laboratory. “Severe idUKTRE5447HI20090505>. Accidents in Spent Fuel Pools in Support of The nation’s top power industry regulator on Generic Safety Issue 82.” NUREG/CR-4982. 1997. Tuesday suggested that U.S. utilities don’t need to build big nuclear or coal-fired power plants to fill 24 The U.S. Department of Energy’s Fiscal Year 2011 the nation’s future power supply needs. Instead, Jon Budget Request. Analysis by Robert Alvarez, Wellinghoff, chairman of the Federal Energy Regula- Senior Scholar, Institute for Policy Studies. tory Commission, said future electricity demand February 2010. growth can be met with a low-emission supply from wind, solar and other renewable sources, combinedSOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 15
  16. 16. 25 United States Nuclear Regulatory Commission. “2009-2010 Information Digest.” NUREG-1350, Vol. 21. August 2009.26 The Institute for Southern Studies. “Nuclear plans hurting power companies’ credit ratings.” July 2009. 15 June 2010 <http://www.southernstudies. org/2009/07/nuclear-plans-hurting-power- companies-credit-ratings.html>.27 “Entergy says nuclear remains costly.” Reuters. 25 May 2010. 15 June 2010 < article/idUSTRE64N5S420100524>.28 Koplow, Doug. “Massive tax subsidies to nuclear in Kerry-Lieberman legislation.” Friends of the Earth. 17 June 2010. 22 June 2010. <http://www.foe. org/more-kerry-lieberman-nuclear-subsidies/>.29 DSIRE: Database of State Incentives for Renewables & Efficiency. 22 June 2010 <>.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 16
  17. 17. APPENDIX A: METHODOLOGYThe conclusions of this report depend upon a cost per kilowatt-hour comparison between elec-tricity generated by nuclear reactors and solar photovoltaic systems — both net of subsidies.The authors of this report have implemented a methodology to derive kilowatt-hour (kWh) costsfrom project installation costs in a transparent manner.Historical installation costs (per watt) were collected from solar industry sources and publicresearch organizations — most notably the Lawrence Berkeley National Laboratory. Present in-stalled costs for solar generating capacity were calculated by collecting installed cost data fromNorth Carolina installers. Future cost projections were sampled from published industry analysesand third-party studies (see citations for Figure 1). The authors made further projections from2010 to 2015 by applying a regular rate of decline to the Department of Energy Solar AmericaInitiative base projections for 2010. Dollar amounts are reported in 2010$.1For kWh prices of nuclear generated electricity from 2001–2008, the authors rely on the Cooper(2009) study of nuclear price trends. Nuclear kWh price projections from 2009–2020 are made byapplying a 1.67% annual price level increase to the average of Cooper’s 2008 projections.2 Refer toAppendix B for the purpose of comparing this conservative estimate of nuclear price escalationto recently observed trends.The authors derived solar cost per kWh using the following calculation: Project Cost ($) × Amortization Factor Capital Cost ($ per kWh) = Generating Capacity (kW) × Capacity Factor (%) × 8760 hoursCapacity factor indicates the percentage of hours in a year that a solar installation generateselectricity output. A reasonable industry standard for North Carolina is 18%, given the state’ssolar insolation profile. This figure will vary slightly as a function of site and module specifics —including shading, roof pitch, and whether or not the photovoltaic unit includes a “sun tracking”device. Before kWh calculations were made, the authors adjusted actual generating capacity bya derating factor (15%) to reflect the line-loss that occurs when a central inverter converts directcurrent (DC) to alternating current (AC) for use. 15% is a consensus derating factor, althoughinterviewed installers cited rapid improvement in inverter efficiency and/or the use of micro-inverters on the back of each PV panel — both of which are limiting line-loss to less than 10%and as little as 3%.Amortization factor reflects the annual payment due on each borrowed dollar of investment. Theamortization factor, for given parameters borrowing rate (i) and amortization period in years (n),is calculated: i Amortization Factor = 1 – (1 + i)–nCapital costs for solar generation were calculated with a 6% borrowing rate and a 25-year amor-tization period. Standard solar modules are warrantied for 25 years.A 30% Federal tax credit and a 35% North Carolina tax credit were applied to the capital cost toreach a net cost per kWh.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 17
  18. 18. Example: 3 kW residential solar installation, $6/watt installed cost, 6% borrowing rate, 25-yearamortization period, 18% capacity factor, 15% derating factor. $18,000 × 0.078227 Cents / kWh = = 35.0¢ (3 kW × 0.85) × 18% × 8760 hoursTaking 30% and 35% Federal and state tax credits yields a net system cost of $8,190 and a netproduction cost of 15.9¢/kWh.1 The U.S. Department of Commerce Bureau of Economic Analysis reports that the index for gross private domes- tic investment has increased from 89.947 in 2000 to 106.623 in 2009 (base year 2005 = 100). Projections made in 2005$ were adjusted to 2010$ using the 6.623% increase in the price of gross private domestic investment.2 The same BEA report indicates an annual 1.67% price increase from the year 2000 index to the year 2009 index.APPENDIX B: NUCLEAR PLANT COST ESTIMATESAND UPWARD REVISIONS PER REACTOR Utility and Reactors Year of Reactor Capacity Cost per Reactor Project Planned Estimate (MW) (Billion $) Florida Power & Light 2007 1550 2 Turkey Point (FL) 2010 1550 12.51 Progress Energy 2008 1100 2.20 2 Shearon Harris 2 & 3 (NC) 2008 1100 Progress Energy 1105 8.50 2 Levy (FL) 2010 1105 11.25 CPS 2007 1358 7.10 2 South Texas Project 1358 S. Carolina Elec. & Gas 2008 1117 2 V.C. Summer (SC) 1117 5.70 2010 1117 6.25 Duke Energy 2005 1117 2.00–3.00 2 William Lee (SC) 1117 5.60 PPL 1600 1 Bell Bend (PA) 2010 1600 13.00–15.00 TVA 2007 1100 7.10 2 Bellefonte (AL) 2008 1100 8.75 Atomic Energy of Canada, Ltd. 2007 1200 2 Darlington* 1200 Constellation Energy 2005 1600 2.00 1 Calvert Cliffs (MD) 2007 1600 5.00 2008 1600*Project cancelled due to cost escalation.NOTE: Utilities have been reluctant to disclose nuclear plant estimates, and have done so on different bases. Someinclude financing costs and escalation during construction; some are not at all current. We have used these estimatesas supporting evidence to the Cooper report.SOLAR AND NUCLEAR COSTS – THE HISTORIC CROSSOVER 18