As I’ve detailed in previous columns, renewables have begun pushing nuclear and coal off the grid in regions where renewables provide a significant fraction of grid power. This is primarily because their priority dispatch on the grid and their generation at times of peak demand are destroying the economics of traditional “baseload” generation. But gas is a natural complement to the variable output of wind and solar, because gas-fired “peaking” plants are able to ramp up and down quickly to fill in when renewable generation fluctuates.
In order to have a grid mostly powered by renewables, it will be important for gas prices to remain competitive with coal and nuclear. At the same time, the cost of unsubsidized renewable power must continue to fall until it is competitive with fossil fuels. Several new reports find that it will reach that point in key areas by 2020.
Citigroup studyA new report by Citigroup, nicely summarized by Giles Parkinson for Renew Economy, forecasts that solar will be competitive with fossil-fueled grid power in much of the world by the end of the decade, and that “the perception of renewables as an expensive source of electricity is largely obsolete.”
The report offered two charts showing the natural gas prices at which wind and utility-scale solar are competitive with gas-fired power generation.
The wind chart plots “capacity factors” against gas prices. A capacity factor indicates the actual output of a wind farm, expressed as a percentage of the output it would have if it were running full time at full “nameplate” capacity. So, a 1 MW wind farm with a 32 percent capacity factor would produce 2,803 MWh of power per year (1 MW x 8760 hours in a year x 0.32).
EIA offers an average capacity factor for U.S. wind of 33 percent, while recent (2010-2012) estimates compiled by the National Renewable Energy Laboratory (NREL) give a median capacity factor of 38 percent for onshore wind and 39 percent for offshore wind.
In the Citi chart, wind at a 32 percent capacity factor was competitive with natural gas at about $7.50/MMBtu in 2012, and will be competitive with gas at about $6.50 by 2020. In very windy locations with capacity factors of 40 percent, wind is already competitive with gas priced below $6, and would be competitive with gas at $5 by 2020.
Put another way, both onshore and offshore wind would be cheaper than gas-fired power in the United States at a gas price of $6/MMBtu or more. Natural gas at $6 would make most of the U.S. shale gas industry profitable, and seems like a good bet for 2020, if not sooner.
For utility-scale solar, Citi cites various solar insolation factors (kWh/kW/year). Insolation factors reflect how sunny a given region is. An insolation factor of 2100 would correspond to a capacity factor of 24 percent (2100 ÷ 8,760 hours in a year). For U.S. solar PV, EIA (which skews a bit to the high side) gives an average capacity factor of 25 percent, while recent estimates compiled by NREL range from 20 to 28 percent.