New Solar + Battery Price Crushes Fossil Fuels, Buries Nuclear

Jeff McMahon Senior Contributor  forbes.com

Los Angeles Power and Water officials have struck a deal on the largest and cheapest solar + battery-storage project in the world, at prices that leave fossil fuels in the dust and may relegate nuclear power to the dustbin.

Later this month the LA Board of Water and Power Commissioners is expected to approve a 25-year contract that will serve 7 percent of the city's electricity demand at 1.997¢/kwh for solar energy and 1.3¢ for power from batteries.

"This is the lowest solar-photovoltaic price in the United States," said James Barner, the agency's manager for strategic initiatives, "and it is the largest and lowest-cost solar and high-capacity battery-storage project in the U.S. and we believe in the world today. So this is, I believe, truly revolutionary in the industry."

It's half the estimated cost of power from a new natural gas plant.

Mark Z. Jacobson, the Stanford professor who developed roadmaps for transitioning 139 countries to 100 percent renewables, hailed the development on Twitter Friday, saying, "Goodnight #naturalgas, goodnight #coal, goodnight #nuclear."

The nuclear critic Arnie Gundersen, who predicted storage prices under 2¢/kwh four years ago on the night Elon Musk unveiled the Tesla Powerpack, noted Saturday that his 2015 prediction was too high. He too said, "Goodbye coal, nukes, gas!"

The Eland Project will not rid Los Angeles of natural gas, however. The city will still depend on gas and hydro to supply its overnight power. But the batteries in this 400-megawatt project will take a bite out of the fossil share of LA's power pie.

"It reduces the evening ramp (of natural gas) as the sun sets," Barner told commissioners at their June 18 meeting. "As the sun goes down for our other 1,000 MW of solar that doesn’t have batteries, the gas-fired generation and hydro have to compensate for that. So that net peak load in the evening will be offset with this facility. We’ll be able to contribute to that and keep gas powered generation not running at the full amount."

Crudely, Los Angeles can count on solar power generation from 7 a.m. to 7 p.m., said Louis Ting, director of power planning development at the agency. The batteries in this project effectively extend that horizon four hours, to 11 p.m.

"The battery can be dispatched differently," Barner added, "depending on the system need. So you could run that four-hour battery over 16 hours at one-fourth of the output, so you can vary it over time. It’s not just fixed over four hours."

The plant will be developed by 8minute Solar Energy on 2,653 acres of privately-owned land in the Barren Ridge renewable corridor in Kern County. The development was first reported Friday by John Weaver at pv magazine, who noted in comments that the price for battery storage is not added on top of the solar price. It's a separate power product, sold at 1.3¢.

Barner explained that the plant will be able to generate more solar energy each day than the available transmission capacity. The extra power will be stored.

"The solar is inherently variable, and the battery is able to take a portion of that solar from that facility, the portion that’s variable, which is usually the top tend of it, take all of that, strip that off and then store it into the battery, so the facility can provide a constant output to the grid. It can turn this solar facility, which is not typically dispatchable, into a dispatchable type of facility."

The plant is expected to deliver its first megawatt by April 2023, a timeline that qualifies it for the federal solar investment tax credit.

"This project is able to make full use of that investment tax credit, which is substantial," Barner said. "It’s 30 percent that is basically knocked off the capital cost of the project."

A natural-gas plant opening that same year would produce power at more than twice the price, according to the U.S. Energy Information Agency, or 4¢-4.3¢/kwh. The agency did not bother modeling the estimated cost of coal or nuclear plants in its 2019 Energy Outlook because, it says, none are expected to be built. Nuclear often benefits from optimistic estimates in the range of 12¢/kwh. Nuclear's advantage has been its constancy and reliability, an advantage cheap storage increasingly challenges.

The lowest known solar price is 1.97¢ for a project in Mexico that did not include storage.

LA is partnering with the city of Glendale on this project, one of eight the staff is negotiating with renewables developers.

Ratepayer advocate Fred Pickel cautioned commissioners to anticipate even lower prices for energy storage:

"Seven years ago the first major projects were brought forward to this board. They’re in service now, they’re the ones that are referred to in or near Nevada. And they were between $90 and $100 a megawatt hour or 9 and 10 cents a kilowatt hour. Now we’re seeing solar projects under 2 cents a kilowatt hour. And I think it’s important to keep the speed of that technology change in mind as we think about batteries and other things. We’re placing bets of how quickly we move vs. how quickly the technology might move, and it is helpful to have a diversified approach to this."

"Is it your view that this steep price decreases will continue?" asked Commissioner Mel Levine.

"It’s a gamble," Pickel said. "You've got to know when you're gambling."

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Interesting article.  Also a very long article.  But it’s one small, 2 sentence paragraph that is revealing.  “The project is able to make full use of that investement tax credit, which is substantial.  It’s 30 percent that is basically knocked off the capital cost of the project.”  So, but for the tax credit, the project isn’t as “cheap” as touted.

There is no doubt that both solar and storage are becoming cheaper.  And, apparently, one part of their “cheapness” is a fat 30% tax credit on capital costs.  a tax credit that NG does not enjoy.

The tax breaks that natural gas receives makes 30% for renewables look like chicken feed.  Long ago we made our deal with the devil for cheap energy, read hydrocarbons.  No industry comes close to the tax breaks that the O&G industry receives.  Those tax advantages never seem to get any play in the media but look them up.  The list is extensive.  Here is a few to get started.

The main tax benefits of investing in oil include:

  • Intangible Drilling Costs: These include everything but the actual drilling equipment. Labor, chemicals, mud, grease and other miscellaneous items necessary for drilling are considered intangible. These expenses generally constitute 65-80% of the total cost of drilling a well and are 100% deductible in the year incurred. For example, if it costs $300,000 to drill a well, and if it was determined that 75% of that cost would be considered intangible, the investor would receive a current deduction of $225,000. Furthermore, it doesn't matter whether the well actually produces or even strikes oil. As long as it starts to operate by March 31 of the following year, the deductions will be allowed.
     
  • Tangible Drilling Costs: Tangible costs pertain to the actual direct cost of the drilling equipment. These expenses are also 100% deductible, but must be depreciated over seven years. Therefore, in the example above, the remaining $75,000 could be written off according to a seven-year schedule.
     
  • Active vs. Passive Income: The tax code specifies that a working interest (as opposed to a royalty interest) in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and can be offset against other forms of income such as wages, interest and capital gains.
  • Small Producer Tax Exemptions: This is perhaps the most enticing tax break for small producers and investors. This incentive, which is commonly known as the "depletion allowance," excludes from taxation 15% of all gross income from oil and gas wells. This special advantage is limited solely to small companies and investors. Any company that produces or refines more than 50,000 barrels of oil per day is ineligible. Entities that own more than 1,000 barrels of oil per day, or 6 million cubic feet of gas per day, are excluded as well.
  • Lease Costs: These include the purchase of lease and mineral rights, lease operating costs and all administrative, legal and accounting expenses. These expenses must be capitalized and deducted over the life of the lease via the depletion allowance.
  • Alternative Minimum Tax: All excess intangible drilling costs have been specifically exempted as a "preference item" on the alternative minimum tax return.

And those are just the federal tax breaks.

I am aware of all of this, and don't find it unusual.  Best I can tell, all of those are "deductions" for actual out-of-pocket costs.  And don't even get me started on the Alternative Minimum Tax.  The depletion allowance for royalty owners and small producers is logical since, once you produce it, it is gone forever.  If I planted cotton, I'd sell that, replant next year, and sell it again.  If I make widgets in a factory, I make them over and over again.  Production of minerals from land is totally unique from nearly every other form or commerce.

I have two types of comparable investments - a rental house, and land planted in timber.  Both of those come with all sorts of tax benefits.  My timber land pays almost no property taxes because of its designation as timber land, and there is a similar deduction based upon depletion when I sell the timber.  My rent from my rental house is practically tax free after I claim my depreciation allowance, plus deducting 100% of all of my taxes, mortgage interest, and maintenance expenses for the house.  In fact, I can't even take advantage of all of the potential write-offs for owning a rental house, and I have to "carry over" my losses year after year.

Congress and states (perhaps excluding CA and NY) have always written tax laws to encourage certain types of activity.  There is a huge difference between a "deduction" and a "tax credit."  One is a "top line" deduction but a tax credit is a "bottom line" credit, right there in the section on the 1040 when you are ready to write your check to the IRS.  I'll opt for the tax credit every time.

Sorry, I ain't budging on my assertion.  

That's fine.  I'm not either.

Steve P, I do agree that timber land pays low property taxes but timber growers have to wait a long time to receive any real income from timber growth.  I haven't heard of a deduction based on depletion.  We deduct our "base" value, but pay capital gains taxes on everything above our base value when we do sell.  We did use the CRP program to help offset the cost of planting.  

I planted my first property in 1991.  It's been thinned twice since that time, (2005, 2011) and I have one more thinning due this year.  After this last thinning, we'll have 8 to 12 years before clear cutting and starting all over. 

what is the lifespan of these batteries?  What are they made of ?  How much do they cost?  Is any part of them recyclable?  What is it going to cost to dispose of them?  How is it the electricity from the photovoltaic cells costs 1.997 cents, but the electricity from the batteries that are charged by the photovoltaic cells only costs 1.3 cents?  The math used here remind me of the same that is used by my insurance company and provider than manage to get more money out of me than if I had just paid cash to the provider.

There is a finite life span for the batteries in an EV.  Those that will go into mass produced EVs will see a second life in buildings.  Tesla recycles their auto batteries in their Power Wall batteries.

https://www.tesla.com/powerwall

Photovoltaic has some limitations but efficiencies are improving and innovation is in high gear as many investors see an opportunity.

https://news.energysage.com/solar-panel-technology-advances-solar-e...

All PV does not use the same technology and therefore the cost per kwh varies from installation to installation and from site to site.  Whatever the cost per kwh is today, it will be lower in the near future and will continue to decline in price over time.  Batteries will become cheaper and more efficient.  The trend is unmistakable.

On the efficiency of PV cells I have no doubt they are improving at an exponential rate.  Not to mention the other advancements they are making as far as application process and durability.  The batteries, I'm not so sure of how they get reused. you talk about from EV to Power Wall, while I'm still trying tp discuss the batteries they are talking about using to feed the grid.

New Solar + Storage projects are popping up in my news feed regularly.  I guess the Australian Tesla project got the most coverage because Musk made a big boast on price and time to build the project.  Tesla met both and the utility has been running the facility long enough now to say that the savings are greater than projected.

You might want to search "utility scale energy storage".

Thanks!

I'm going to do some counter prediction here:  Efficiency of typical commercial solar cells is about 20% (before allowing for shading/poor orientation, etc).  The best solar cells are running about 45% (think for space programs, where money is no object).  I posit to you that the current state of the art represents the rough maximum efficiency (because its very difficult to find materials that will use all the available wavelengths).  

The challenge then, is in the kwhr/$ space.  And silicon is already pretty cheap. I suggest that we could see solar drop about 50% per kwhr over the next 10 years, but anything beyond that is going to be something from beyond the laws of physics and chemistry as we know it.  

On the battery front, you can have cheap, you can have dense, and you can have high energy deliverability.  But you can only get 2 of the 3 in a cell.  You can do some things in wiring to help with deliverability, but cheap and dense are about chemistry.  Any every new dense energy storage technology seems to run into the problems of irreversible reactions and/or thermal runaway.  Obviously, lots of work is ongoing in this area, and I think it has more potential than solar cell development, but electrochemistry is hard.  

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