Researchers at Lawrence Berkeley National Laboratory (LBNL) have found that a combination of lower capital, operating, and finance costs, in addition to better equipment performance, and longer useful lives, have driven power purchase agreement (PPA) prices and the levelized cost of energy (LCOE) for utility-scale wind and solar projects to all-time lows. The findings were presented by Mark Bolinger, research scientist in the Electricity Markets and Policy Department at LBNL, during a webinar focused on trends in deployment, cost, performance, pricing, and market value for utility-scale wind and solar.
A Decade or More of Phenomenal Growth
Bolinger noted that from 2006 to 2019 wind power capacity operating on the U.S. grid had grown by nearly an order of magnitude—from 11.5 GW to 106 GW. The percentage increase in utility-scale solar photovoltaic (PV) capacity, which researchers define as ground-mounted systems with capacities greater than 5 MWAC, has been even greater, increasing from 1.7 GW in 2012 to 29 GW at the end of 2019.
Bolinger said most of the wind power development has occurred in the U.S. interior, where the wind resources are strongest. He acknowledged, however, that wind farms are scattered across the country with the notable exception of the Southeast, which has very limited wind resources based on current tower heights and technology.
Solar power development, which mainly began in the Southwestern U.S., has expanded into areas not particularly known for their sunny skies. Bolinger specifically mentioned Oregon, Washington, Minnesota, Michigan, New York, and Vermont as cases in point.
“Over the past six years, wind and solar together have contributed 58%—so more than half—of all new generating capacity that was added to the U.S. grid over that period. Natural gas accounted for another 39%. So just these three resources—wind, solar, and gas—together accounted for 97%, so almost all of new capacity added to the U.S. grid,” Bolinger said.
Even so, wind and solar together only account for about 10% of U.S. power generation. Natural gas currently provides the largest share of production (38.4% in 2019). Coal, which has been declining in virtual lockstep with gas’s increase over the past decade, still supplies more than twice the power produced by wind and solar. Nuclear and hydropower, meanwhile, have remained fairly consistent for years. Nuclear has supplied between 19% and 20% of the power mix, while hydro has accounted for about 7%. Notably, wind surpassed hydro for the first time last year and shows no sign of turning back.
The wind and solar sectors have benefitted from favorable tax policies over the years. “It’s no secret that the PTC [production tax credit] for wind and ITC [investment tax credit] for solar have been major drivers of wind and solar deployment,” Bolinger acknowledged, “but under current law, both of these credits are being phased out.” Therefore, economic competitiveness is what will drive continued growth going forward, according to Bolinger.
“Competitiveness really comes down to weighing cost versus value,” he said. On the cost side of the equation are upfront installation costs (often referred to as capital costs), operating costs, and financing costs. Capacity factor and useful life also factor into the calculation. On the value side, Bolinger focused exclusively on energy and capacity value. He said ancillary services and renewable energy credits (RECs) can also add value, but few renewable projects are providing ancillary services and RECs vary widely based on location so the value is difficult to generalize.
Since 2010, the cost curves for both wind and solar have declined steadily. Average installed costs for wind have fallen by 40%, while solar has plummeted 70%. Furthermore, operating costs have also declined as the useful life of projects has steadily increased—a 30-year useful life is now common for both wind and solar projects. The combined effect has been a marked reduction in the LCOE.
Capacity factors for both wind and solar have also improved over the years. Wind capacity factors have risen from about 30% a decade ago to more than 40% today. The driving factor behind the improvement has been an increase in the swept area of the wind turbine rotor relative to rated capacity. “Anytime you increase the size of your rotor, you’re going to capture more of the energy flowing by in the wind. And if you funnel that greater amount of captured energy through the same size generator, all else being equal, you will boost your capacity factor,” said Bolinger.
Solar capacity factors increased from about 20% to 25% between 2010 and 2013, but have remained stagnant since then. The increase resulted from higher inverter loading ratios, greater use of single-axis tracking, and the buildout of projects in sunny areas. Bolinger said as the market has expanded in less-sunny regions, the reduction in average solar insolation has offset the other factors, causing average capacity factors to stagnate.
Capacity factors tend to decline as projects age. Bolinger’s figures implied a performance degradation of about 1.1%/year. He emphasized that the value was higher than is often reported by plant operators, but said LBNL researchers were tracking all-in performance for the entire plant rather than just module degradation. He also noted that curtailment could factor into the decline, because curtailment tends to increase with increased market penetration.
The net effect of capital, operating, and financing cost declines, as well as capacity factor and useful life increases, has been a significant decrease in PPA prices—now at all-time lows. “For both wind and solar, average PPA prices have declined by about 80% since 2009,” Bolinger reported.
Although solar PPA prices have been higher than wind PPA prices historically, the prices have converged. “Utility-scale PV PPA prices have come down quite a bit in recent years,” Bolinger noted. “Whether wind or solar is more expensive or cheaper really depends on what region of the country you’re looking at.”
Furthermore, wind and solar are both increasingly competitive to the cost of burning natural gas in an existing combined cycle gas turbine. “We’re not even considering the capital cost of building the combined cycle plant to begin with. We’re just looking at fuel costs, which are obviously just a subset of gas plant operating costs, and even on that basis, wind and solar have been pretty competitive in recent years,” Bolinger said.
Concerning wholesale market value for wind and solar generation, Bolinger suggested the calculation depends on three main factors. They are:
- Hourly generation profiles of wind and solar, and how they align with hourly price profiles.
- Energy and capacity prices at the location of wind and solar plants, considering congestion.
- The extent to which wind and solar experience curtailment.
While these factors vary greatly depending on the region of the country examined, a person can get a general understanding of the differences in value by looking at nationwide annual averages. For example, the combined energy and capacity value of a “flat block of power,” which is basically an around-the-clock block of power evaluated across all pricing nodes, was about $30/MWh in 2019. When researchers factored in solar and wind profiles, congestion, and curtailment elements, wind’s resulting market value was found to be about $20/MWh, basically 33% below the value of a flat block of power. On the other hand, the market value of solar power was actually 10% higher than the value of a flat block of power.
The researchers also broke the numbers down by region. Their findings indicated that after “netting out” PPA prices, solar had positive net value, and also greater net value than wind, in four of the six regions studied (CAISO, SPP, ERCOT, and PJM)—MISO and ISO-NE were the two exceptions. “The fact that solar tends to provide greater net value than wind might be one reason why solar has really skyrocketed to the top of grid interconnection queues across the country,” Bolinger said.
According to data gleaned from 37 interconnection queues studied across the U.S., solar, storage, and wind have grown steadily in the queue since 2015. In fact, solar went from third place in the queue as recently as 2016 to first place by a wide margin today. All other resources in the queue, including natural gas, have declined. Notably, solar is increasingly being paired with battery storage—28% of projects in the queue combine the two technologies. Although not all capacity proposed in the queue will ultimately be built, the trends are significant.
Looking ahead, the phase-down of federal tax credits will push wind and solar PPA prices higher, Bolinger said, as wind and solar’s market value likely continues to decline with growing market share. However, he noted a fortuitous shift in the debt-equity ratio is expected to mitigate some of the PPA price increase as tax credits fade.
—Aaron Larson is POWER’s executive editor (@AaronL_Power, @POWERmagazine).