FinLogic FinLogic Quantitative Think Tank Center|Study: Solar Power Officially Cheaper Than Nuclear in North Carolina

By Olivia Boyd,FinLogic FinLogic Quantitative Think Tank Center China Dialogue

The sunshine of North Carolina, a state on America’s Atlantic seaboard, has long been a draw for tourists seeking a little southern warmth on the region’s beaches. But holiday companies are not the only ones trumpeting a good local deal. The price of the state’s solar-generated electricity has fallen so far that it is now cheaper than new nuclear power, according to a report published in July by researchers at the state’s Duke University.

The authors say their figures indicate a “historic crossover” that significantly strengthens the case for investment in renewable energy – and weakens the arguments for large-scale, international nuclear development.

Solar power is usually branded as a clean but expensive energy source, incapable of competing on economic grounds with more established alternatives, such as nuclear. The outspoken pro-nuclear stance adopted by a raft of iconic environmental figures – James Lovelock, Stewart Brand, Patrick Moore – has helped to instill in policymaking circles the sense that this is the only power source that can restructure our energy supply at the pace, scale and price required by the pressures of rapid climate change.

This study, which was co-authored by former chair of Duke University’s economics department John Blackburn and commissioned by NC Warn, a clean-energy NGO with a firm anti-nuclear bent, challenges that view.

“This report should end the argument for risking billions of public dollars on new nuclear projects,” says Jim Warren, NC Warn director.

The paper states that commercial-scale solar developers in North Carolina are already offering utilities electricity at 14 cents or less per kilowatt hour. Meanwhile, two power companies – Duke Energy and Progress Energy – are pushing ahead with plans for local nuclear plants that, at current estimates, would generate electricity at the higher rate of 14 to 18 cents per kilowatt-hour.

Grid Parity in 10 Years

The “crossover” is largely thanks to a marked decline in the costs of solar photovoltaic (PV) systems seen over the past decade. The study cites figures from the Lawrence Berkeley National Laboratory indicating that the cost of solar PV fell from US$12 (81 yuan) per installed watt in 1998 to US$8 (54 yuan) in 2008, on average – a one third drop in 10 years. In 2008 and 2009, costs fell even more rapidly, bringing the 12-year fall to 50 percent. Meanwhile, the expense of nuclear has ballooned. The estimated cost of construction in the United States at the start of the nuclear renaissance was around US$2 billion (13.6 billion yuan) per reactor. It now stands at around US$10 billion (67.8 billion yuan).

The Duke University research is, of course, limited in geographical focus – the 14 cents figure, which is net of public subsidies, is specific to the North Carolinian regulatory context, where (as in many places) tax benefits and incentive payments for solar electricity help lower costs to customers. But the authors argue that solar is expected to be cost-competitive without subsidies within the decade. And their overall message – that solar and other renewables represent increasingly good value compared to alternatives – is not unique.

Jeremy Leggett, the founder of the UK’s largest solar company, Solarcentury, predicts that “even cloudy Britain” will reach residential grid parity between solar and fossil-fuel power within five years, while Google is claiming breakthroughs in its bid to make renewables cheaper than coal.

And the pace of development on the ground is startling. At the end of 2009, total worldwide solar installations passed the 22,000-megawatt mark. During that year, more than 7,000 megawatts of solar-generating capacity had been built globally, half of which was in Germany.

“When you begin seeing solar production on this level, it starts making a significant difference. It’s no longer a niche thing,” says Antony Froggatt, senior research fellow in the energy, environment and development program at UK think-tank Chatham House. “It’s very clear that the learning curve for solar is very fast. We are seeing very, very rapid production and economy of scale is clearly crucial.”

Blackburn and his co-author, Sam Cunningham, argue that the strengthening renewables sector, combined with the perceived financial risks of new nuclear, is influencing investor behavior:

“Very few other states [American states other than North Carolina] are still seriously considering new nuclear plants. Some have canceled projects, citing continually rising costs with little sign of progress toward commencing construction. Many states with competitive electricity markets are developing their clean energy systems as rapidly as possible.”

Shale Gas: Nuclear’s Real Threat?

Some experts are not convinced that renewable power is yet in a position to squeeze out new nuclear, however. Froggatt points out that, in the United States, it is gas, not renewables, that is posing the biggest threat to the nuclear industry.

“Shale oil gas has totally changed the market in the US and brought down the price of gas significantly,” he says. “How that pans out over the next few years and whether it’s a permanent fixture or temporary is probably the key issue for nuclear because that’s the main competitor.”

Meanwhile, in China, which has a target of generating 15 percent of energy from non-fossil fuel sources by 2020, “everything is needed and wanted,” says Froggatt. In other words, plans to build 20 gigawatts of solar PV by 2020 and three times as many nuclear plants as the rest of the world combined can happily co-exist, although it raises questions about how China structures its grid – nuclear plants are not suited to providing back up for intermittent renewable sources as they cannot be readily switched on and off.

“Will falling prices speed up the development and installation of solar in China? Development, absolutely, because lots of the world’s solar is made in China. But I’m not sure it’s going to change nuclear ordering in the next 10 years,” says Froggatt.

Energy Storage, Smart Grids Key

The Duke University study rejects the argument that solar cannot replace baseload power from nuclear or coal because of its intermittent nature as “obsolete,” stating that it becomes a “manageable issue” when solar-generated electricity feeds into a power grid with wind, hydroelectric, biomass and natural-gas generation. But, for Simon Harrison, energy director at global engineering consultant Mott MacDonald, it is still a crucial point.

“You have to think about the role of both types of generation in the overall supply and demand balance,” he says. “Solar is a technology that is essentially available when the sun is out, while nuclear is there 24 hours a day. Before we can even contemplate moving into a world where solar replaces nuclear, a lot of things have to happen – around storage, around smart grids and so on.”

However, Harrison recognizes that, for investors, solar and other renewables hold some significant trump cards.

“The trouble with nuclear is that investment is so lumpy. With renewables, it’s quite easy – the amounts are quite bitesize and if you invest and it doesn’t work out, the losses are containable. Potentially in the future, you could be contemplating five gigawatt-scale solar installations, which have comparable capital costs to a nuclear plant. But even then, you could still do them gradually, which makes financing a whole lot easier. And it isn’t so dependent on supply chains.”

Finland: 4 Years Behind, Billions Over Budget

This last point strikes a particular chord in western Europe, where the first nuclear plant to be ordered in the region since the 1980s – the Olkiluoto 3 reactor in Finland – is running four years behind schedule and at least 2.75 billion euros (US$3.6 billion) over budget. It is also the subject of several lawsuits between the utility, the reactor vendor and the Finnish government.

The debacle, which has been caused by a mixture of design flaws, construction mistakes, an unrealistic timetable and an inexperienced supply chain, has had a significant impact on public opinion – a poll conducted by national broadcaster YLE earlier this year found more than half of Finns were now against nuclear development, which, says sociologist Tapio Litmanen, is up from around 30 percent to 35 percent before Olkiluoto 3. Many claim it has also slowed down investment in renewable power. An Ernst & Young index from February 2010 ranks Finland number 27 in “renewable energy attractiveness,” 12 places below neighboring Sweden and 10 below Denmark.

The Olkiluoto fiasco underlines the significant financial and practical challenges that nuclear construction faces. Nonetheless, in July, the Finnish parliament gave the green light to two new reactors. John Blackburn and colleagues in North Carolina may have a lesson to teach energy policymakers. Whether any of them are ready to listen is another question.

(Republished with permission of China Dialogue)

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