Understanding the cost of providing electricity to its citizens and industries is crucial for any nation. Power ministries are struggling not only with the cost of providing electricity, but also with reliability and sustainability; the three corner stones of energy policy or the ‘energy trilemma’.
Coal and gas generate approximately 60% of electricity worldwide and 50% of primary energy. The rise of low cost and reliable power from coal and gas over the past 150 years has led to an unprecedented reduction in poverty and increase in longevity and health. Coal and gas’ dominance is supposed to change with the energy transition towards ‘renewable’ wind and solar, based on the belief that such a transition will be beneficial economically, as well as environmentally.
Bloomberg2 recently issued their latest global levelised cost of electricity (LCOE) analysis with global media coverage. The company compares the historical LCOE of various ‘renewables’ with the cost of coal, gas, and nuclear. It misleadingly represents wind and solar as being cheapest. Reports and analyses, such as Bloomberg’s, which mirrored in message and content from the IEA, IRENA, IEEFA, IMF2 and others, are the basis for governments to conclude that the transition from coal and gas to wind and solar will save billions, if not trillions.2
This energy economic misunderstanding of ‘cheap renewable’ power is a crucial and detrimental one. The unpopular truth is that: (a) wind and solar will always be more expensive than coal and gas at grid scale; and (b) total costs to an economy rise logarithmically with more wind and solar in the power system. That is why the global ‘transition’ will cost trillions, 7 – 10% of global GDP, and as per IPCC data supersedes the cost of a warming climate.2
The reasons are multi-fold, but at the core LCOE is a micro economic view which misses seven cost categories, and therefore should never be used by governments for energy policy decision. Only an estimate of the full cost of electricity (FCOE) will include all costs.2
Obvious costs not included in LCOE are caused by intermittency, low natural capacity factors, correlating wind and solar ‘availability’ across continents, and the locational disparity of demand and supply:
- Backup or long duration energy storage (LDES), which does not exist today – except for insufficient pumped hydro.
- Network integration, including costs for interconnections, transmission, balancing, and conditioning.
Not so obvious costs missing in LCOE at grid scale include:
- Efficiency losses of backup and storage – more wind and solar means less asset utilisation of backup.
- ‘Room’ costs driven by low energy density (per m2) of wind and solar.
- Recycling costs, driven by low energy density (per kg) and short lifetime of wind and solar.
- Environmental costs – i.e. damage to plant and animal life, negative effects on local climate systems (including from warming, wind extraction, and atmospheric changes).
- Raw material and net energy inefficiency (eROI) – production, processing, transportation, upgrading, manufacturing, and recycling need to be considered.
We have to do everything in our power to reduce the environmental externalities of our existing energy systems, including from coal and gas. We need to invest in, not divest from, oil, coal, gas, and nuclear – which provide almost 90% of global primary energy – to improve their environmental efficiencies. The ‘transition’ to wind and solar will always increase the cost of energy and reduce reliability, with all its consequences for humans and industries.
- Links to sources referenced in this article can be accessed here: www.unpopular-truth.com/LCOE-links.htm
