Lessons From The Texas Grid: The Levelized Costs of Electricity (LCOE) is a widely quoted, yet often abused 'statistic.' Failing to understand its pitfalls can lead to absurd conclusions.
Bravo!! That explanation was so concise and clear that my 89 yr old mother would "get it".
It makes me ill when I hear high placed politicians (& the ultimate snake oil man - Al Gore) spout off about how cheap wind/solar has become. Al Gore knows better but I really don't think these politicians truly understand the ramifications of the decisions they are making.
Please send this to all elected representatives in all the developed economies - before they leave us all in the dark with their plans to lead us into the enviro light.
p.s. the car/roller-coaster analogy was superb. A short YouTube video on it would race around the world in short order.
Thank You! When the West's leaders are publicly ‘locked into’ a narrative of cheap wind, and when you have a multi-billion dollar industry relying on that narrative, it sadly may take a lot of pain for reality to set in.
I have no doubt that they will eventually get it as there are ample examples of wind/solar's limitations already - if you care to look. My concern is the legacy of the debts left over after the money has been spent for naught. Thanks again for the article.
Hi PEP, your article is well laid out and I won’t argue with your assessment that renewables need backup, that’s absolutely the case. I think that you weaken your argument for anyone knowledgeable when you fail to combine the output of both wind and solar when running your calculations on annual needs for batteries in a hypothetical renewable only grid. While wind production declines in the summer in Texas, solar tends to be very strong, so that the combination of the two creates a much more balanced production curve. The amount of batteries needed is still high, but nowhere near your figure.
This is particularly true if we stop looking at a renewables only scenario. The last 5% is what really sends costs to the moon, so I for one would be happy with the mostly renewable grid which uses natural gas turbines for those periods when you need an extra boost.
Trying to reach 100% is what creates high cost renewables, but it’s no reason to not go as far as we can in a cost effective way.
First, thanks for taking the time to read it. And yes...you bring up an interesting point, what about wind and solar? Before I get to that,
The real point of the piece is show how silly the LCOE assumption is without considering backup.
As I’m sure you know, the (unbuffered) LCOE has become one of the main ‘justifications’ to claim that wind and solar are supposedly cheap. However, the logic is extremely flawed: the LOCE assumes a flat, steady output 24/7 365 in the calculations. Yes, it’s silly to build that much battery backup ( probably not even physically possible), but that backup is assumed to be free under a basic LOCE.
A financially sound way to estimate the true cost of wind, solar, batteries, etc would be to look at the marginal value to the grid as a whole. For example, if you add a solar farm to the grid, the solar farm is only worth the natural gas saved by not needing to run your gas plant when the sun is shining. Take that fuel savings, subtract the costs of idling the gas plant during the sunny part of the day, extra transmission etc, and that’s the real value of that solar farm.
Of course, subsidies, RECs, and RPS hide the real value.
On both wind and solar,..You might find this piece of the South Australian grid interesting. South Australia has ~ 70% renewables penetration. We looked at it from a more comprehensive view, not from the LOCE assumptions like the Texas piece did.
Thanks for the link. I'll take a look this evening. Many of my best investments have been O&G related stocks, and I work in the solar industry, so I'd like to think that I have a more nuanced view of this situation than most.
I think the underlying question becomes whether you want to plan your grid around renewables, with fossil fuels as the "backup," or assume that you should only consider marginal value today for adding new resources to the existing, higher fossil fuel based grid. I'm personally a fan of low marginal Opex cost renewables, particularly solar, in part because of my experience being in and following the industry closely for close to a decade.
Obviously subsidies, RECs, etc do hide some of the true costs, but on the other hand U.S. protectionist trade policies increase the costs. In Europe a utility scale solar project can be installed for under $0.75/watt before subsidies, whereas here, due to module tariffs and other factors, similar projects would be $1.10-1.40/watt before subsidies.
And of course as an O&G investor, I'm familiar with the tax incentives that have been in place for that industry as well. Clearly most energy resources have gotten subsidies at some point given the importance to our national interests.
So that is a good point: the ‘underlying question becomes whether you want to plan your grid around renewables, with fossil fuels as the "backup," or assume that you should only consider marginal value today.’
So that’s exactly the experiment South Australia did.
There’s a massive underlying issue: Energy Return On Energy Invested. When you add in all the energy costs to make renewables, plus the energy costs to build the back up, plus have the energy supply on standby to run that backup, the addition transmission, the total energy costs of trying to build a grid around renewables is staggering. The energy output for the energy costs are a far lower return than say, nuclear, most fossil fuels, or even hydro based grid.
That’s in general of course. As you know, not all solar/wind locations have the same resources: and a few places simply can’t get fossil fuels shipped in cheaply. Etc.
One of their conclusions is that “Wind supply can vary over time scales of **decades** and tens of TWhs of very long-duration storage will be needed.“ They propose building “60 to 100 TWh” of storage.
As a rough estimate, assuming wind and solar patterns are the same in Texas and GB (which is wrong but allows me to piggyback on that study), and given Texas consumes about 50% more electricity than GB, that would correspond to 100+ TWh of storage for Texas, vs 10 TWh (10,000 GWh) estimated by Penguin, i.e. 10 times as much.
I agree with you that building a pure renewables grid leads to impossibly massive storage needs.
Excellent article. I would also point out that Texas is blessed with plentiful renewable energy resources. It is much worse in the rest of the world, particularly in Asia where more than half of the world’s population lives.
Yo this is top tier. Only thing this needs is more sources to meme at various real claims people are making, though there’s no shortage of straw men to burn.
Good luck as you build your durable moat of execution -- the analysis is already there
This is a very useful analysis. As China has a grid that is enormous and has lots on solar/wind and an increasing EV car fleet, any comments on how they keep it running. I have heard that they have a lot of coal plants running at low capacity (as they are very deficient in natural gas,the best fuel for swing electricity production.
Bravo!! That explanation was so concise and clear that my 89 yr old mother would "get it".
It makes me ill when I hear high placed politicians (& the ultimate snake oil man - Al Gore) spout off about how cheap wind/solar has become. Al Gore knows better but I really don't think these politicians truly understand the ramifications of the decisions they are making.
Please send this to all elected representatives in all the developed economies - before they leave us all in the dark with their plans to lead us into the enviro light.
p.s. the car/roller-coaster analogy was superb. A short YouTube video on it would race around the world in short order.
Thank You! When the West's leaders are publicly ‘locked into’ a narrative of cheap wind, and when you have a multi-billion dollar industry relying on that narrative, it sadly may take a lot of pain for reality to set in.
I have no doubt that they will eventually get it as there are ample examples of wind/solar's limitations already - if you care to look. My concern is the legacy of the debts left over after the money has been spent for naught. Thanks again for the article.
At 30+ trillion in national debt, that is a very real concern and I’m in the same boat.
Hi PEP, your article is well laid out and I won’t argue with your assessment that renewables need backup, that’s absolutely the case. I think that you weaken your argument for anyone knowledgeable when you fail to combine the output of both wind and solar when running your calculations on annual needs for batteries in a hypothetical renewable only grid. While wind production declines in the summer in Texas, solar tends to be very strong, so that the combination of the two creates a much more balanced production curve. The amount of batteries needed is still high, but nowhere near your figure.
This is particularly true if we stop looking at a renewables only scenario. The last 5% is what really sends costs to the moon, so I for one would be happy with the mostly renewable grid which uses natural gas turbines for those periods when you need an extra boost.
Trying to reach 100% is what creates high cost renewables, but it’s no reason to not go as far as we can in a cost effective way.
First, thanks for taking the time to read it. And yes...you bring up an interesting point, what about wind and solar? Before I get to that,
The real point of the piece is show how silly the LCOE assumption is without considering backup.
As I’m sure you know, the (unbuffered) LCOE has become one of the main ‘justifications’ to claim that wind and solar are supposedly cheap. However, the logic is extremely flawed: the LOCE assumes a flat, steady output 24/7 365 in the calculations. Yes, it’s silly to build that much battery backup ( probably not even physically possible), but that backup is assumed to be free under a basic LOCE.
A financially sound way to estimate the true cost of wind, solar, batteries, etc would be to look at the marginal value to the grid as a whole. For example, if you add a solar farm to the grid, the solar farm is only worth the natural gas saved by not needing to run your gas plant when the sun is shining. Take that fuel savings, subtract the costs of idling the gas plant during the sunny part of the day, extra transmission etc, and that’s the real value of that solar farm.
Of course, subsidies, RECs, and RPS hide the real value.
On both wind and solar,..You might find this piece of the South Australian grid interesting. South Australia has ~ 70% renewables penetration. We looked at it from a more comprehensive view, not from the LOCE assumptions like the Texas piece did.
https://open.substack.com/pub/eagleforge1/p/do-less-with-more?r=2og74c&utm_campaign=post&utm_medium=web
Thanks for the link. I'll take a look this evening. Many of my best investments have been O&G related stocks, and I work in the solar industry, so I'd like to think that I have a more nuanced view of this situation than most.
I think the underlying question becomes whether you want to plan your grid around renewables, with fossil fuels as the "backup," or assume that you should only consider marginal value today for adding new resources to the existing, higher fossil fuel based grid. I'm personally a fan of low marginal Opex cost renewables, particularly solar, in part because of my experience being in and following the industry closely for close to a decade.
Obviously subsidies, RECs, etc do hide some of the true costs, but on the other hand U.S. protectionist trade policies increase the costs. In Europe a utility scale solar project can be installed for under $0.75/watt before subsidies, whereas here, due to module tariffs and other factors, similar projects would be $1.10-1.40/watt before subsidies.
And of course as an O&G investor, I'm familiar with the tax incentives that have been in place for that industry as well. Clearly most energy resources have gotten subsidies at some point given the importance to our national interests.
So that is a good point: the ‘underlying question becomes whether you want to plan your grid around renewables, with fossil fuels as the "backup," or assume that you should only consider marginal value today.’
So that’s exactly the experiment South Australia did.
There’s a massive underlying issue: Energy Return On Energy Invested. When you add in all the energy costs to make renewables, plus the energy costs to build the back up, plus have the energy supply on standby to run that backup, the addition transmission, the total energy costs of trying to build a grid around renewables is staggering. The energy output for the energy costs are a far lower return than say, nuclear, most fossil fuels, or even hydro based grid.
That’s in general of course. As you know, not all solar/wind locations have the same resources: and a few places simply can’t get fossil fuels shipped in cheaply. Etc.
Aurelien, you are correct to point out that excluding solar in the calculations results in an overestimation of the needed storage.
But at the same time, Penguin made some simplifying assumptions that underestimate the amount of storage needed.
The UK Royal Society released a report last September in which they proposed a Great Britain grid made exclusively of wind and solar.
https://royalsociety.org/topics-policy/projects/low-carbon-energy-programme/large-scale-electricity-storage/
One of their conclusions is that “Wind supply can vary over time scales of **decades** and tens of TWhs of very long-duration storage will be needed.“ They propose building “60 to 100 TWh” of storage.
As a rough estimate, assuming wind and solar patterns are the same in Texas and GB (which is wrong but allows me to piggyback on that study), and given Texas consumes about 50% more electricity than GB, that would correspond to 100+ TWh of storage for Texas, vs 10 TWh (10,000 GWh) estimated by Penguin, i.e. 10 times as much.
I agree with you that building a pure renewables grid leads to impossibly massive storage needs.
Love the analysis on how much it would cost to smooth out the intermittent generation of variable renewables with seasonal storage.
If it’s not expensive storage, it’d have to be underutilized fossil fuels or massively overbuilt renewable generation transmitted from far away.
Thank you! Yes, you’re spot on. Either we’d waste lots of resources on storage or backup.
Excellent article. I would also point out that Texas is blessed with plentiful renewable energy resources. It is much worse in the rest of the world, particularly in Asia where more than half of the world’s population lives.
Yes, that’s true.
Yo this is top tier. Only thing this needs is more sources to meme at various real claims people are making, though there’s no shortage of straw men to burn.
Good luck as you build your durable moat of execution -- the analysis is already there
Thank you.
Instant subscription. Eloquently presented. Good work
Thank you!
Educational article that deserves wide dissemination.
Thank you!
This is a very useful analysis. As China has a grid that is enormous and has lots on solar/wind and an increasing EV car fleet, any comments on how they keep it running. I have heard that they have a lot of coal plants running at low capacity (as they are very deficient in natural gas,the best fuel for swing electricity production.
Any story that mentions cheap renewables is fraud.
Any time a story leaves out the most expensive parts (reliability), it'll misinform the public at best.