Are Fossil Fuels Really Cheaper than Renewables?

“It is unfair to compare the first solar plant to the one hundred thousandth coal plant.”

Palo Alto -- The quick answer to the question in the headline is that we don't know.

Although electricity from fossil fuels like coal, natural gas or nuclear plants is generally quoted as being lower in price than power from solar panels, the factors in the equation aren't completely equal, according to panelists at the 2010 Silicon Valley Energy Summit sponsored by the Silicon Valley Leadership Group taking place at Stanford University.

The kilowatt-hour figures quoted for coal actually quote the marginal cost, i.e., the cost to produce the power at the moment, according to Jim Detmers, the vice president of operations at the Cal ISO. It does not include capital costs. On the other hand, prices for solar or wind include the entire capital costs, the real estate and operating costs.

"We have not totally priced what those other sources of fuel cost," he said. "Those are two different costs."

Added SunPower CEO Tom Werner: "It is unfair to compare the first solar plant to the one hundred thousandth coal plant."

John Denniston, a partner at Kleiner Perkins, added in a separate panel that in 2008 the fossil fuel industry received $550 billion in subsidies worldwide, while renewables only received $45 billion. There's another factor to add into the fossil versus solar price calculation.

The event seeks to highlight the main issues facing the green community in Silicon Valley and in the nation at large. The usual cast of characters is here -- Ed Lu from Google is looking for a turkey sandwich at the moment -- including a whole host of PG&E executives. The audience applauded when Stanford's Jim Sweeney asked PG&E president Chris Johns why the utility backed Proposition 16, which would have made it tougher for cities to set up their own utilities.

Other notable tidbits at the event:

--China is moving fast, said Denniston. China only accounted for three to four percent of the wind industry five years ago. Now it accounts for 50 percent of the market. The global solar industry, he added, comes to $50 billion. That's bigger than online advertising, according to Denniston.

He added that solar prices declined by 50 percent from 2008 to 2009. Other than housing in Florida, it'd be tough to find other products that slid that fast.

--Alan Salzman from VantagePoint Venture Partners predicted that LED and solid state lighting would dramatically drop in price. In the next 12 to 18 months, the market will explode because the return on investment will be difficult to ignore.

Salzman declined to comment on the pending Tesla Motors IPO (VantagePoint was the initial investor in that company), but he did say, "I think we are going to see a huge wave of M&A activity."

--California has a peak power capacity of around 50 gigawatts, but the state only dips into its peak power region for about four percent of the time each year, said Detmers.  (That comes to approximately 350 hours a year.) Smart grid technologies and storage could help reduce the amount of capital required to service that peak.

--Storage could also make wind more economical, Detmers added. West Texas recently experienced a 24-hour period of negative pricing, i.e., wind providers were paying wholesale customers to take electricity and consume it instead of the other way around. In Texas, wind farms can get five cents per kilowatt hour if they deliver electricity generated by wind, but they don't get the subsidy if they don't deliver the power. Thus, some companies have been paying customers a little bit less than the subsidy to take the power.

"We're talking $20 to $30 per megawatt hour for 24 hours," he said.

Only wholesale electricity buyers got paid to take power, but they nonetheless got paid. A similar situation recently occurred in Germany, he added. Power providers were asking people to leave their lights on at night.

 "I don't want to be an example of that" in California, he said.

--While PG&E likes solar, a lot of construction needs to take place for California to meet its 33 percent renewable standard by 2020, according to Steve Malnight, vice president of renewables at PG&E. PG&E now has 40,000 customers with solar systems that total 350 megawatts. California utilities are supposed to get 20 percent of their power from renewables by the end of the year. If you wanted to fill that 20 to 33 percent gap with solar, it would take 5 gigawatts.

"We'd have to do what we did 15 times," he said.

--Weirdly, solar could cause the cost of fossil fuels to rise, noted Werner, Malnight and Detmers. With more solar, fossil plants will not have to run at maximum. When not running full tilt, these plants become less efficient, which causes prices to rise. Will it actually cause a price increase? Will solar become so pervasive that it will allow utilities to decommission old fossil fuel plants despite the intermittent nature of solar? We will find out.

--Kaiser Permanente talked about its energy efficiency strategies. By putting in new light bulbs and installing window films, the company spent $2.4 million and will save $1.2 million a year.  Kaiser wants to reduce its greenhouse gases by 20 percent by 2020 and increase the portion of its energy that comes from renewables by the same juncture.