Booming business makes renewables cheaper than nuclear

       

Further reading

• Clean energy investment breaks the $100bn barrier in 2007 (93)
• The World Nuclear Industry Status Report 2007 (109)

Investment in renewable fuels is booming. Last year, solar and wind are reported to have broken through the 100 BUSD wall and reached 117 BUSD, a growth over 3 years that averages more than 40% per year. Reportedly, there is no slow-down in sight - on the contrary! Growth 2007 was 20 BUSD above predicted values.

Market and costs

Presently, wind (onshore and offshore) has some 60 GW and Photovoltaics some 8 GW, together 70 GW, i.e. 1.5% of the world’s total installed electricity capacity of some 4500 GW. This is to be compared with the nuclear installation of 350 GW, or almost 8% of world’s total.

Cost comparisons between wind, PV and nuclear indicates a considerable disadvantage for solar and wind. On average, a reasonable 30% extra for wind up to a noticeable 80% for PV compared to the cost of nuclear. It must, however, be remembered that there is a great variation depending on local circumstances, and PV is no doubt very competitive to anything in remote locations.

Wind and PV would, however, have to acquire some 100-200 GW more in installed capacity to get in cost-parity with nuclear, meaning that their markets have to triple. Would such a buydown of the extra costs be possible and motivated?

Buydown of costs

To find out, we have to look closer at the Learning Rates (LR), i.e. how much the costs are reduced with each doubling of the accumulated volume of the technology on the market. The IEA has recorded LR for nuclear to roughly 6%, whereas the LR for PV and wind is some 15-20%. These observations are corroborated and partly explained in that LR for modular systems is higher, since they can be mass-produced in factories, whereas field erected plants have lower LR.

This difference in Learning Rate, together with the fact that the present accumulated market is different with a factor of 1:5, and the tremendous yearly market growth for the renewables is actually good news for them and bad for nuclear! It is easier to double the market when you are small and with each doubling your cost is reduced much more (a factor of 3:1) than for the bigger alternative!

In a study, “Analysis of Energy Technology Changes and Associated Costs”, where the learning of the market has been coupled to a model for product diffusion, Professor Peter Lund has investigated both product development and market uptake. His market changes are much more modest, which is probably explained by the fact that the paper was written before the present boom was registered. His conclusions about the need for “learning investment” still seem valid, i.e. the cost above the reference that is incumbent technology, to be some 200 BUSD, and easily paid for by their CO2 advantage.

Potential

More important could be that once the cost-parity is reached, the higher learning rate still works and the costs for PV and wind continue to drop faster. So, in a longer perspective, the technologies that represent a new view and a more decentralised infrastructure seem to have the upper hand. Still in their youth, (but clearly beyond infancy,) they still need support and guidance, but they hold more promises than the technology of yesterday.

Professor Lund assumes in his paper that the potential for Wind is some 2000 MW and PV some 3000 MW. Estimations for 2050 say that total installed power would reach 7000-9000 GW.

Given the natural restrictions for nuclear in that utilisation must be very strictly controlled by the IAEA, the renewable alternatives would be a safer bet. Is that what the financial market has discovered?

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NOTES:

1) The illustration above is made with lower LR for the Renewables than quoted in the text, but still illustrates the basic facts well.

2) The article by Professor Lund cannot be linked since it is scientific material published in the International Journal of Energy Research 2006.