Even though storing intermittent wind and solar power in electric car batteries sounds attractive, this will be impractical and expensive in practice, writes Schalk Cloete. Electric cars have much clearer synergies with baseload power plants, while excess wind and solar power is better suited to H2/synfuel production.Â
Wind/solar power and battery electric vehicles (BEVs) truly are celebrities in the energy world. They are constantly in the news and have a wide range of dedicated fan-sites following their every move. Also, since wind and solar generate electricity directly and BEVs can utilize electricity very efficiently, many people believe these technologies are highly complementary.
This assumed synergy between intermittent renewables and electric cars is a big part of what I would call “the electrify everything strategy” that is very popular at the moment. Since wind and solar produce electricity directly, it makes sense that most final energy consumption will be in the form of electricity in a future wind/solar-dominated energy sector. This sounds great at first glance, but several serious problems emerge upon further inspection.
Current electrification status
The fact is that we are very far from the electrify everything ideal at present. As seen below, IEA data for the year 2015 show that electricity accounted for a mere 18% of global final energy consumption. When considering that we have less than 20 years left in our 2 °C carbon budget, this is a big problem for the electrify everything strategy.
As outlined in an earlier article, this low share is an important reason for scepticism about current wind/solar technology-forcing policy frameworks, the two other prominent reasons being wind/solar intermittency and the poor correlation between wind/solar availability and population density.
Scope for future electrification
A truly synergistic connection between intermittent renewables and electric cars has the potential to significantly boost electrification, while simultaneously alleviating the intermittency problem. As shown below, transportation is currently totally dominated by oil, leaving lots of potential for diversification.
Battery electric vehicles (BEVs) are best deployed as passenger light-duty vehicles, which account for only a quarter of global oil consumption. Even in this segment, the economic attractiveness of BEVs fades quickly for longer-distance applications. Hence, it is difficult to see BEVs displacing more than 10% of oil consumption without large perpetual subsidies.
Even if we get a technological breakthrough (i.e. $30/kWh fully installed battery packs with 1 kWh/kg specific energy made from truly abundant materials) and BEVs eventually supply 50% of transportation energy, there will still be a very long way to go in the electrification journey. As shown below, transportation accounts for only 28% of final energy consumption, and this share is likely to drop with increased electrification and general efficiency.
Searching for synergy
Still, a synergistic relationship between BEVs and intermittent renewables will certainly increase the potential impact of both technologies.
By far the most attractive BEV usage pattern is slow charging at night for driving during the day. From a practicality standpoint, such a night charging regime is highly convenient for owners. From an economic point of view, this usage pattern requires only a cheap slow charger installed at home and does not need any grid expansion because load is generally lowest at night (see below). The need for a smart system ensuring that charging only happens during the early morning hours may add a moderate cost though.
The primary challenge with trying to find synergies between intermittent renewables and electric cars is that this will enforce a departure from this night charging pattern. Charging electric cars primarily during times of high wind/solar output will inevitably be much less convenient and require much more expansive charging and grid infrastructure.
For wind power, output is simply too unreliable and variations occur over too long timescales. It is not uncommon to have several days of strong winds followed by several days with almost no wind. Trying to match electric car charging with such widely varying electricity production will simply be far too impractical.
Power production during February 2018 in Germany (source).
However, night charging of electric cars will help to increase minimum load, thereby reducing curtailment during windy nights. But there will also be many windless nights where night charging and wind output are completely misaligned.
When looking at solar, it is obvious that the correlation with night charging of electric cars is zero. In fact, electric cars in a solar-dominated system will need to be charged in the middle of the day. This will be much less convenient than night charging because many vehicles are in use during this time and it can be troublesome to find a convenient longer-term parking spot with a charger every day. This charging pattern will only suit the most economically inefficient of all travelling modes: the single-person-in-car rush-hour commute.
Traffic breakdown over a typical day showing that about 5x more vehicles are in use during the middle of the day than the middle of the night (source).
Daytime charging will also be much more expensive. Firstly, a solar dominated system will need to construct countless public smart chargers so that most cars can be charged around noon when solar output is strongest. This will be much more expensive than a simple home changer, especially when new underground wiring needs to be installed to connect public chargers to the grid.
More importantly, daytime charging will increase peak load, requiring expensive grid upgrades. Furthermore, countries that are located away from the equator will see large seasonal changes in solar output, requiring people to charge cars during the day at public chargers during the summer and at home during the night during winter. Cloudy days will cause additional inconvenience and capacity under-utilization in a solar daytime charging plan.
In summary, wind can have a neutral or slightly positive interaction with electric cars, while solar has a clearly negative interaction.
Finding synergy
Baseload generators have a much clearer positive interaction with electric cars. Night charging of BEVs will flatten the daily load profile, allowing for the installation of more baseload capacity instead of load-following capacity.
Average capacity utilization power plants playing different roles (source).
Baseload generators operated at maximum capacity factor have significantly lower LCOE than load-following generators. In addition, since no grid upgrades will be required to distribute additional night-time electricity, fixed grid costs can be spread over a larger quantity of electricity. These two factors can allow BEVs to significantly reduce the average electricity cost in a baseload-dominated system.
Excess wind and solar power is better suited to centralized H2/synfuel production than BEVs. A power-to-gas plant will be much better equipped than electric cars to increase electricity consumption whenever wind/solar output happens to be high.
Furthermore, a power-to-gas plant can be connected directly to the transmission network, circumventing the need for expensive upgrades to the distribution network to feed excess wind and solar power to millions of distributed public chargers.
Due to their sizable efficiency losses, power-to-gas plants require very low electricity prices (~$20/MWh) to be profitable, but, as discussed in an earlier article, such prices will be commonplace already at fairly moderate market shares of wind and solar power. It is doubtful that wind and solar generators can be profitable under these conditions, but with continued wind and solar technology-forcing policies, this certainly is a possibility.
Cost and value decline in wind and solar power estimated in a previous article.
Conclusion
Ironically, a large increase in wind and solar power (solar in particular) will maintain the dominant role of fuels in the transportation sector. In such a scenario, internal combustion engines and fuel cells have a bright future.
Solar power is totally misaligned with the convenient and economic night charging BEV usage pattern and is therefore incompatible with widespread BEV deployment. Power-to-gas plants are better suited to capitalize on excess wind and solar power to generate affordable synfuels for the transportation sector.
Electric cars are fundamentally best suited to a baseload-dominated electricity sector. In such a power system, a large fleet of BEVs charging primarily at night can significantly reduce the average electricity cost to consumers.
In summary, nuclear proponents can reasonably promote electric cars in parallel to nuclear plants. On the other hand, it makes little sense for wind and solar proponents to promote electric cars. Parallel technology-forcing of intermittent renewables and electric cars significantly increases the likelihood of getting stuck with a highly complex, expensive and only partially decarbonized energy sector supplied by perpetually subsidy-dependent wind/solar and BEV companies.
Editor’s note
This article first appeared on The Energy Collective and is republished here with permission.
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Helmut Frik says
The article is a bit outdated in many ways.
First, there is a lot of push to provide charging possibilities at offices factories and shopping malls. Providing low power charging up to 20kW is not really costy, and will become cheaper a lot when the equipment needed becomes a mass manufactured product. Charging will become a comodity whereever cars are standing without use for a significant time.
Seond self driving abilities of cars will rise. This will happen fastest at low speeds, which are used today to automatically park the car.
At parking lots where usually no pedestrians will be allowed, and later on at parking lots with pedestrians, cars moving from place to place at low speed, stoping when pedestrians are around, will be the standard.
This will help to better utilise the space, and it will allow to use fewer charging points for a lot of cars. The abilities to drive this way are already available, it is just a question of interface definition between car and parking lot.
So cars will charge when prices are low, at any time of day. Without keeping the driver busi with this topic. Unless a driver wants charging at a specific time and is willing to pay a premium price.
There is no cause to assume that parking and fueling in the future will happen exactly like it happened in the past.
Schalk says
I agree that we should not assume that transportation energy consumption will be the same in the future as it is today. However, I believe that this will only make it more difficult for BEVs to attain the dominant market share predicted by many green optimists: https://www.energycentral.com/c/ec/another-celebrity-couple-electric-cars-and-autonomous-driving.
Helmut Frik says
well, there is no demand for BV vehicles with a range of 1600 km or so. The demand for travel is reziproke to the distance, and for long distance travel trains and planes are much more convenient than cars. Cars will be used in the Taxi-Distance range, with ample opportunity to recharge, allowing low battery capacites.
There is no need to travel long times and long distances in the crammed space of a car, if changing to a train providing much more space, more comfort and higher travel speeds is possible with just tiny effort.
Cars will also suffer from the same geometric restrictions than today in big densly built up cities, which also favours trains for long distance and high volume travel.
The main obstacle for train use today is that people have their private car as their own private rolling living room. This will not exist any more if autonomous vehicles serve plenty of people during the day. So changing to a huger vehigle with e.g. seperate space for many customers in group seats as in a car will not be considered as a disadvantage any more, as it is still today bo older citicens especially.
(Mobility habits of the younger generatio is moving towards a more flexible behaviour, including much more public transport and car sharing, and resulting in sinking car ownership)
Also in a world with abundant solar power supply, daylight fast charging will most likely be cheaper than nighttime slow charging. Otherwise your argument of shrinking revenues for solar power with higher solar power shares would be wrong.
Schalk says
I certainly agree that urban car ownership will decline. Pedestrian/cyclist-friendly city planning, telecommuting, small electric vehicles and improved public transport will remove most of this highly wasteful practice.
The trade-off between fully autonomous cars and trains for longer trips is more debatable though. The process of getting on the train will continue to be much more tedious than having an autonomous car pick you up close to your home. Cars are all about convenience. They are so popular today because people value convenience extremely highly. We’ll have to see how it turns out when autonomous driving eventually becomes a reality.
As stated in the article, the issue of BEVs and solar is that public charging during the day is less convenient than night charging at home, about the costs of added charging and grid infrastructure requirement, and about the underutilization of all this additional infrastructure due to seasonal and weather-related variations in solar output.
To just discuss the economic implication of the added grid buildouts: transmission and distribution typically cost about $50/MWh for commercial and residential applications. In a solar daytime charging pattern, peak load could increase by about 20% as everyone charges their cars in the middle of the day. However, this substantial added transmission and distribution capacity will only be used to transport a small fraction of total electricity – probably about 5%. Hence, for this added peak electricity, transmission and distribution costs will soar to about $200/MWh, making the generation cost of solar irrelevant.
The costs of ubiquitous public chargers, most of which need a lot of new underground wiring over sprawling parking lots, and most of which are underutilized in the winter time when solar output is low, will add substantially to this cost.
In general, this is a prime example of the capital utilization problems created by high penetration wind/solar power. Their low capacity factors spill over to a wide range of other infrastructure. In such a system, society will end up with a huge amount of grid, storage, and flexible demand infrastructure that is used at capacity factors of 20% or less. As argued with Bas below, this is fine if the discount rate is near zero, but when more reasonably discount rates around 10% are used, this becomes a big problem.
In addition, people will have to change their energy consumption patterns with the season, with the weather and with their geographic location, leading to substantial inconvenience. And as mentioned above, people really like their convenience.
Helmut Frik says
Additional capacity in grids is CHEAP. And existing in many places already.
And charging on parking lots is easy and chap when cars can move the last meters autonomous. Supplying a set of charging station swith e.g. a 60kV cable is not really costy, and provides a lot of power for charging.
About changing from car to long distance trains: today a lot of people are willing to change from car to plane, which is a pain in the ass comparing to changing to trains. People change the mode of transport if this makes the trip faster or cheaper. You can experience this where public transport is fast.
bout interest rates: realistic interest rates do not fall from heaven, they can be calculated balsed on the data of the economy where things are installed. The interest rate should be growth of productivity+inflation rate+risk of the investment in the long run.
In the calculation a rising inflation rate equals itself out, so when calculating with nominal prices of one year for the whole investment, calculation can be done based on growth of productiovity + risk.
If it is a zero risk investment (banks consider renewable investments as a close to zero risk investment in many cases) if the interest rate a investment ca produce on the invested money is higher than the growth of productibity, then it should be a profitable investment (And it will increase the growth of productivity in this society).
Risk is a important factor when lookig at othe investments in the power sector. Renewable power generation has a track record of usually bein guilt on time, on cost, and mostly delivering the expected output. So the risk part of the interest rate is low as far as the financing banks are concerned.
Nuclear in comparison has a track record of being often years, sometaimes decades behind schedule, having giat cost overruns, and not so seldome project get struck completely and never produce any power. Which causes that banks finance nuclear either at high interest rates, or not at all.
Schalk says
Please see my comments below about the cost of added peak T&D capacity and the discount rate.
The issue of risk is an important topic here. It is true that wind/solar capacity has a better recent track record than nuclear regarding cost overruns. However, while the risk for nuclear is on the cost side of the ledger, wind/solar have similarly large risks on the revenue side.
Since the value of wind/solar will inevitably drop and the integration costs increase over the lifetime of the plant as more wind/solar is installed, these plants will also have serious risks related to recovering their costs in an open market. The value decline and cost increase are unpredictable and dependent on many external factors such as the evolution of the dispatchable fleet and the delayed grid expansions currently experienced by Germany.
At the moment, this risk is socialized by offering guaranteed prices for wind/solar power regardless of value declines and not charging the added grid and balancing costs to the generators that cause them. This certainly reduces risk for wind/solar investors, but just shifts this risk to the public. Personally, I think this risk is at least as large as that experienced by nuclear.
It would be interesting to see what happens to wind/solar financing costs if they are fairly exposed to market prices and required to carry the grid expansions and other (e.g. redispatch) costs required to balance their intermittent output.
Helmut Frik says
Nuclear has a almost identical problem on the revenue side if you want to reach high peetration rates, because the reveue for nuclear also drops to zero for all time beside the peak hour when penetration is high. Which means no revenue at most of the time.
To avoid this the same measures (dynamic loads, pumped storage, grid expansions) have to be made than for renewable power production – and they have been made in earlied decades in France, Germany (and the neighboring countries like swizerland and Austria which built a lot of storage for this task). They help to accomodate more renewable power generation in these grids today.
French nuclear power share was stoped around 70% because of this.
Schalk says
Baseload generators will always get very close to the average market price over a long time period, simply because they generate power almost all the time, while wind/solar generate most of their output during times when prices are low. This can easily be seen in German data.
You don’t need much imagination to understand that high market shares of nuclear will be much simpler to integrate than high market shares of wind/solar. At 70% market share, baseload output will only exceed demand by a few percentage points occasionally and there will be no times where output becomes very low. 70% wind/solar, on the other hand, will regularly exceed demand by a factor of 3, while there will always be other times when output is close to zero.
The fact that French nuclear was halted at 70% should therefore be a cautionary tale for advocates of future wind/solar energy dominance.
Helmut Frik says
Well the assumption that basload gets close to market average was wrong in earlier times, and becomes even more wrong when the represent a major share of capacity. because then the variable cost of the baseload generator sets themarket price most of the time. Which is very low, but although a bit higher than the variable costs of wind and solar power generation.
And when calculations were made in detail, the result was that your imagination was not really correct.
Some simple facts to make things obvious. Germany has slightly above 40% share of renewables today, but only had one very short time when wind and solar supplied 100% of the german demand.
So even if dynamic loads, storages etc. are not expanded over time, to reach twice the german demand would require wind and solar to supply more than double the todays output in TWh. Which would naturally result in a renewables share a bit above 70%. (if all offered power is used.) The same number as nuclear today.
Now if we look at france, the nuclear power station fleet if fully working offers about 60GW. Demand in summer night in france often falls to around 30GW, sometimes a tiny bit below. So at 70% share of nuclear, there are also thmes wher enuclear supply is roughly twice the demand. similar often than it would have to be expected for the german grid with 70% renewable supply.
I know this is not the result you expected, but the real world numbers look like this.
The difference between nuclear and renewables at 70% share as far as oversupply at the double volume of demand is roughly the difference between theoretical output and practical avilable capacity of the french nuclear fleet (66GW installed capacity).
Sot there is a small difference between nuclear and renewables, but it is small, not big.
One cause that the difference is small and not big, is that solar is correlated with the daily demand, and wind is correlated with the seasonal demand. So renewable output folows to some degree the demand, which a constant output does not.
In the other hand the stochastic changes of renewables output is bigger than of nuclear (which is also not that small, given that sometimes about one third of the french nuclear fleet was not operational)
This is why even RWE – the biggest fan of conventional generation in germany – does not expect any significant need for storage for a sharo of renewables of um to 80% in germany.
Or do you think RWE has no idea about power plnt and grid operation? (50 Hz came to the same result…)
Bas Gresnigt says
” … risk for nuclear is on the cost side … wind/solar have similarly large risks on the revenue side. ”
The cost side risks of nuclear are huge. E.g. USA has ~100 reactors, but 83 reactor projects were abandoned during construction (45% risk).
Nuclear also suffers from significant risks at the revenue side as substantial part of nuclear plants is closed temporarily due faults or even final long before they are paid off.
Thanks to the weather predictions the risks at the revenue side are for wind & solar relative small.
Schalk says
The majority of nuclear reactors currently being targeted for shutdown have operated for 30-40 years – long enough to recover their costs. I strongly doubt that we will see shutdowns of the new reactors currently being built in the developing world before they reach this age. I would also imagine that most nuclear projects that were abandoned before operation were abandoned quite early before large investments are made, so that losses are minimal.
Imperfect forecasting is a relatively small part of the steady revenue decline of wind/solar. Revenue decline is mostly caused by the simple fact that wind/solar generate most of their output when prices are low because of self-cannibalization.
Helmut Frik says
french nuclear fleet – already old – has earned about 75% of the construction sots according to cour des comptes, but non of the decomissioning costs or the costs to store the wastes.
For germany, where numbers of the nuclear adventure become more clear now, the expectation is a red or black zero when storing the wastes is not considered, and red ink when it is included. It is not clear why new nuclear power stations with higher costs should come to a better result.
Bas Gresnigt says
The conclusion: “large increase in wind and solar … will maintain the dominant role of fuels in the transportation sector” is wrong.
Wind & solar will become so cheap (~1,5cnt/KWh in next decade) that even substantial losses with storage still makes it the only competitive (against fossil fuel) source for transportation.
Storage by batteries and PtG(H²) are widely predicted to make great progress towards very low prices.
Nuclear Power followers predict already 50years major price decreases. But the opposite occurred, new nuclear is now more expensive than ever (~15cnt/KWh), despite the continued major subsidies. Still, the followers continue to dream about cheap nuclear.
Schalk says
Bas, we have been over this 1.5 ct/kWh issue many times before. Your core assumption here is discount rates close to zero. This only applies in the developed world where strong policies virtually guarantee investor returns, shifting risk to the general population.
Economically efficient discount rates should be over 10% in the developing world where 90% of future energy infrastructure will be built. This makes capital-intensive RE capacity and the low utilization of all other energy elements trying to distribute and consume power only during times of high wind/solar output much more expensive. I recommend doing the math yourself to see just how large this effect is.
Please refrain from the 1.5 ct/kWh mantra. This simply does not apply when using an economically efficient discount rate and the fact that the developing world will totally dominate new energy deployment.
Bas Gresnigt says
High discount rates will increase the costs of new nuclear even more….
Schalk says
I certainly agree that nuclear economics also suffer when higher discount rates are applied. I have had this debate with several nuclear advocates as well, mostly about the idea that nuclear is so great because of its long lifetimes. When the discount rate goes to 10% any electricity generated 30 years from now is essentially valueless.
The point is about all the surrounding infrastructure. Nuclear plants with night-time charging of EVs will maximize capacity utilization of all elements of the energy generation, distribution and utilization network. It will also make things attractively simple. Please see my comments to Helmut above about the challenges and inconveniences of low wind/solar capacity factors spilling over to a lot of other capital-intensive infrastructure.
Helmut Frik says
Read the research of Agora and similar which have calculated how much the costs of storage, grid capacities etc differ between a nuclear domiated grid towards a renewable dominated grid.
As far as I remember the cost differences are almost negible up to 50% share of nuclear or wind / solar. And above that not so extremely much higher for wind and solar than many expect. Surely not 200€/MWh. For that price you can send the electricity twice around the globe.
Bas Gresnigt says
In the west new nuclear requires a lot of environmental licenses, etc.
Together with the long construction period, it implies that a new nuclear plant won’t operate before 2040.
Then wind & solar are at a regular price level of 1.5cnt/KWh , and storage at similar low price level.
It implies that new nuclear will run mainly on subsidies as its cost price is far higher. Subsidies, much higher than old nuclear now get in some US states.
Those subsidies also imply that the NPP will run only a short period as tax- & ratepayers don’t like to pay such subsidies.
Schalk says
Could you give some links to peer-reviewed papers in the “other” category you mention above? I have read several Agora reports, but found them to be of much lower quality than the broadly cited peer-reviewed work of Hirth et al. I generally refer to for these matters.
The $200/MWh mentioned in the earlier comment refers to the marginal added cost of increasing transmission and distribution capacity to satisfy only the increased peak required by charging millions of BEVs in commercial districts in the middle of the day in summer, i.e. the cost that must be charged to the BEVs that require this added peak load distribution. Capacity utilization of this large amount of extra underground wiring will be somewhere around 10%, making it very expensive.
Helmut Frik says
I see no general differences between Hirth and Agora. Just that
– Agora uses newer EMPIRICAL data, which shows higher market prices at todays shares of wind and solar than predicted by Hirth – Hirth did not include effects of power trading and dynamic loads which start to become ever stronger the lower the price of wind and solar is locally.
And they did the same calculations for nuclear, which has almost the same problem, but to a bit lesser degree at high penetrations.
Schalk says
Could you link me to the Agora research that compares value declines to Hirth’s work? That sounds like an interesting read.
My own calculations show that, after correction for the fact that Germany uses the dispatchable capacity of its neighbours to balance out about 25% of its wind/solar output, Hirth’s modelling is is very good.
I’m quite interested to see the results from 2018. The high summer prices so far will probably make the yearly average wind value factor drop to about 70% and the value factor of coal and gas rise to about 130% – already getting close to the point where the average unit of coal or gas electricity is worth double the average unit of wind.
Bas Gresnigt says
In 2017 the Fraunhofer 2017 PPT, shows that:
Wind produced 19%
Solar produced 7%
And their volume weighted value factor was for:
Wind: 85% (15% less than av.)
Solar: 96% (4% less than av.)
While the simulations of Hirth predict for that situation roughly two times worse value losses: >30% and >10%.
Helmut Frik says
The numbers will not do you the favor. The market prices are not high because it is summer, but because world market prices for coal have risen, and CO2 prices have risen.
This is a tide which lifts all boats. So wind power is also rising in value – see the prices at times of higher wind output.
For wind power generation this leads directly to higher earings to from the market without higher costs. (due to EEG this money ends um in the pockets of the customers, not wind power generators – but for EEG free generation this would be real windfall profits), while for the coal power generators and gas power generators, this means just higher earnings which just compensate the higher cost – earnings are as bad as ever.
Mike Parr says
“Economically efficient discount rates should be over 10% in the developing world where 90% of future energy infrastructure will be built” – this assertion is based on ???
And how do you define “economically efficienct” – keeping banksters in the style to which they have grown accustomed to?
There is nothing that says the discount rate could not be 5% (which is the rate which pension funds are happy with) or 1% (which is the sort of rate a central bank would be happy with). You stick with the 10% because it supports your arguments – 5% or 2% or 1% would destroy your arguments.
Schalk says
The economically efficient discount rate has nothing to do with banksters. It is about incentivising the economy to invest in infrastructure (energy, roads, housing, schools, hospitals, etc.) that gives the fastest returns to society, i.e. contributes to continued economic progress in the most efficient way. For example, a rapidly developing economy needs energy today to drive further economic growth, and energy that will only be delivered a decade or two from now is rightly valued much less.
In an economic sense, high discount rates are important in rapidly growing economies to prevent it from overheating. Artificially low interest rates will stimulate investment in all sorts of economically inefficient infrastructure, causing asset bubbles to pop up everywhere. Bubbles eventually burst, potentially causing great economic turmoil.
I generally estimate the economically efficient discount rate as follows: the economic growth rate of the country plus about 4% for risk and another 1-2% each for technological learning and performance degradation. We can add an additional 1% to cover the cost of all the lawyers and “banksters” involved in the practical aspects of project finance.
The statement of the majority of new energy being deployed in developing countries can be easily verified in any broadly recognized energy forecast.
Mike Parr says
Your hypothesis is undermined by China, where favoured sectors get financing at reduced rates of interest. Of course we could then have a discussion: is China “developing” or “developed” – if the former, this raises interesting questions for the EU & USA.
Schalk says
The discussion is not about whether financing costs are artificially manipulated in certain countries – they certainly are – the question is about the economically efficient discount rate.
China is a unique case that got itself into a spot of bother by combusting half the world’s coal on about 3% of the world’s surface area, obviously creating pollution concerns. They now have to force all sorts of cleaner energies into the market through any mechanism they can to curb air pollution, while continuing to expand the energy supply. All the resulting subsidies and other market manipulations are not economically efficient, but it has to be done because China was too slow in imposing strict pollution limits on its industry.
Bas Gresnigt says
“refrain from the 1.5 ct/kWh mantra … does not apply when using an economically efficient discount rate and the fact that the developing world will totally dominate new energy deployment.”
Please study this 2018 Fraunhofer report about the future costs of renewable electricity generating technologies, and realize they probable under-estimate the price decreases as they did in the past.
It shows already with their offshore wind cost predictions…
The expansion of the developing world will decrease renewable costs, thanks to the larger series sizes which allow for more automation! Compare the complexity and costs of a TV with that of PV panels and inverters….
What is (the significance of) an “economically efficient” discount rate? Can we find that rate somewhere?
Schalk says
Sure, I am well aware of the Fraunhofer report. It exactly illustrates my point in that they use a 2.1-2.5% real WACC in the calculations of low LCOE for onshore wind and utility solar PV. If they used 10%, the numbers would look very different.
Please see my reply to Mike above about the economically efficient discount rate.
Bas Gresnigt says
Thanks.
Summarizing your ‘economically efficient discount rate’ definition:
“It is about incentivising the economy to invest in infrastructure … that gives the fastest returns to society, i.e. contributes to continued economic progress in the most efficient way.”
Investors are incentivized, not the economy. The economy doesn’t take investment decisions, etc.
The general idea is that society benefits most when the WACC/interest is just high enough to attract enough investments.
As investors vary in their views about the future (optimistic-pessimistic) the WACC to get enough investments, varied hugely.
So mechanisms to bring clarity and stability in this fuzzy situation. Mechanisms such as central banks who announce interest rates, etc.
In line with that, a real WACC (=inflation corrected) of 2.1%-2.5% is nowadays enough to get the needed capital for low risk investments (=wind & solar).
Note that nuclear would suffer far more under an high WACC, even with govt loan guarantees covering all loans (as with Hinkley C). That is because of its >10years longer construction period.
Hans says
The reality is that most person cars are used for commuting over relatively short distances and are parked during office hours. Charging during these times would be great to fight the infamous duck-curve.
Mister Cloete handwaves this possibility away by assuming enormous costs to installing charging infrastructure at these parking places and mumbling something about the wastefulness of commuting alone in your car. As another comment noted: mass production makes everything cheaper. Furthermore, if we would be able to drag people from their car, they will use battery based electric mass transport which can play the same role for the grid.
Schalk says
Please see my comment to Helmut above about the economic and practical issues of low wind/solar capacity factors spilling over to a wide range of other infrastructure.
I would certainly be happy if people used mass transport instead of cars (battery powered or otherwise). As mentioned in the comment to Helmut, I think that urban car travel will fall substantially over coming decades due to several more attractive alternatives. The US will probably be very late to this transition though, given that a lot of American cities are literally built for cars.
Emanuele Taibi says
The article assumes regulators have no role to play, therefore everybody will charge exclusively at night. It also discovers that sun does not shine at night. Seems a highly skewed pro-nuclear article. If I may attempt to summarize in one sentence: EVs will play a key role in integrating solar, for which you need time-of-use charging prices and public charging infrastructure (i.e. charge cheaply and using solar at work), while plugging the vehicle at home will greatly help in further reducing the need for ancillary services, in particular reserves to compensate for wind forecast error, and provide (some) revenues for EV owners, further increasing EV competitiveness with ICE. As some can only charge at work and some only at home, you will have both services, and will help integrating both solar and wind.