Renewable Energy: Approaching Grid Parity?

I seem to remember an e-mail going around not too long ago about different politicians and oil CEOs "going into the confessional," so to speak.

First up was ConocoPhillips (NYSE: COP) CEO Jim Mulva, who said he did not believe the global oil supply would ever surpass 100 million barrels per day because of production constraints and new laws limiting greenhouse gas emissions.

I love how Peak Oil can be cloaked in such nebulous terms as "production constraints."

According to ConocoPhillips, the International Energy Agency has forecast that supply will expand to 100 million barrels of oil per day by 2020.

And then there was President Bush, who, during an interview with a European reporter, had this to say about the price of oil approaching $100 per barrel: "I believe oil prices are going up because the demand for oil outstrips the supply for oil. Oil is going up because developing countries still use a lot of oil. Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling. That's why the price of oil is going up."

That too sounds like Peak Oil, with a little guile on the side.

So that's it then. The leader of the Free World and the head of one of the largest oil companies in the world say, albeit not explicitly, that oil demand is outpacing supply and finding new sources is going to be difficult and expensive.

So renewables are going to reach grid parity soon, right?

Not if Royal Dutch Shell (NYSE: RDS.A) CEO Jeroen van der Veer gets his way.

Last week, in speech entitled "Shell Scenarios for the 21st Century," van der Veer said the world faces a doubling of energy demand by 2050 but renewable sources are still too expensive and will take decades to make a big impact.

He also outlined what he called the three hard truths facing the world:

1. A big rise in demand as the global population rises from around six billion to nine billion by mid-century

2. Most renewable energy sources are still far too expensive, even compared with higher prices for oil, gas and coal.

3. The reserves of oil and gas that are easily accessible and close to the markets where they are required are depleting.

He added to his third "truth" that extracting new supplies would require much larger investments per unit than in the past.

So to summarize: We need more energy. Oil is more expensive and harder to get. Yet renewables are not competitive, even with the rising prices of fossil fuels.

What is this guy smoking?

More on Grid Parity

If I'm right, and I am, recent developments in renewable energy mean that solar is already achieving cost parity in locations that don't have easy access to fossil fuels.

Hawaii is the perfect example. And just so you know I'm not making it up, here is a quote taken right from the BP(NYSE: BP) website: "In the USA, parity with the electricity grid at peak charging rates has already been achieved in northern California and Hawaii."

Their website also states that Italy, Germany and Spain are good candidates to achieve parity in the near future. That should mean in the next year or two, as major solar producers are preaching grid parity by 2012.

Of course, we'll continue to need oil and coal, but in lesser and lesser quantities. And here's what I don't get.

Why are most of the major players (company executives, politicians, et al.) so divisive when it comes to the energy issue? It's either "We need to open up more oil drilling." or "Nuclear is the way to go." or "Renewables are the answer."

When, in reality, there is going to have to be a mix of available fuel sources for years to come.

Point is, renewables have the most market share to gain. And they're doing it because costs are falling, interest is rising and the world is finally starting to realize that renewables can be a viable source of energy not only on a decentralized level, but on a massive scale as well.

Last week at the Piper Jaffray Clean Technology and Renewables Conference, most of the major solar companies, as well as a few energy storage, wind and alternative fuel cast members made their case.

But they weren't making it to just anyone. In the audience of every session were hedge fund managers, investment bankers and several private equity guys. They're all trying to get a piece of what they know is going to a major part of the energy market going forward.

The universal verdict: All major solar module producers (think FSLR, SPWR, STP and others) are ramping up production and driving down costs.

In fact by the end of 2009, First Solar (NASDAQ: FSLR) will have a production capacity of over 1 gigawatt [GW]. And they're all but guaranteeing electricity at $0.08-0.10 per kilowatt hour [kWh] no later than 2012.

That was the mantra throughout the entire conference--from a variety of companies.

So sorry Mr. van der Veer. Unless by "decades" you meant less than five years, I'm afraid you're off the mark.

And as these companies ramp up output, there is going to be some serious money to be made. We're truly on the ground floor of a massive opportunity.

The savvy investors that load up now on the right solar, wind, geothermal, energy storage and battery stocks are going to be the titans of the 21st century.

Disclosure: None

Comments

[tessant]

solar is so huge people!
think about how big the energy market is
buy the leading companies on pullbacks

scott
growthportfolio

[vboring]

solar has only achieved grid parity in terms of cost in places with massive subsidies, only according to the most idealistic assumptions, and only in places with the worst power system management.

take away the subsidies and mandates, and add some reality and you end up with coal delivered for about $.06/kWh in most places and solar for about $.25/kWh.

this is why there are several new large scale coal plants being built in Nevada. to economically serve California's load without emitting CO2 in California.

Hawaii has huge access to geothermal that they have chosen not to develop so far because the volcano is considered sacred.

FSLR may make huge piles of cash, but most of it will be from idealism, subsidies, and mandates, not from a better energy product.

[Camden]

vboring,
Your handle suits your opinion. Your comment that "solar has only achieved grid parity in terms of cost in places with massive subsidies, only according to the most idealistic assumptions, and only in places with the worst power system management" is looking at the past. If you take the time to look forward you'll see that FSLR truly IS likely to be producing massive amounts of electricity (enough for MILLIONS of homes) at prices that are comparable to oil-fired generation WITHOUT subsidies in five years or less. True, coal will be cheaper. So what. The point Mr. Hodge was making is that all energy-producing technologies will be needed and solar and other alternative technologies are likely to gain an increasingly larger piece of the market as their costs come down. On that point he is, in my opinion, undeniably correct. Those that choose to keep their heads in a dark, dusty cave are unlikely to see the light.

[MInterest]

I think that your article is half-correct. There is future in renewables, there is really a lot of future, but unfortunately it will take decades (the Shell guy is right) to get it to the 'masses' in very economical way so that it will have an effect on the world oil demand. Also, you need to think outside the USA, where most of the oil demand is growing (China, India, Indonesia, Africa)...where many of the renewable energies will still be too expensive compared to conventional energy (coal, oil, gas). I think as consumers we need to continue pushing Goverment and Oil majors to invest in renewables, it our children's and grandchildren future....

[frflyer]

There are are a few things that everyone is overlooking.
The real price of petroleum is what no one wants to talk about. It's been estimated that gasoline would now cost about $12 per gallon, if all the hidden costs of oil were included. The annual hidden costs of oil have been estimated at over $800 billion annually. Tax credits and subsidies to oil and gas are over $80 billion annually. The military cost of protecting our oil shipments is estimated at over $100 billion annually. These numbers don't count the enormous costs of the war in Iraq.
I would bet that solar is cheaper right now, if the real costs of fossil fuels were included. I know, most conventional power plants are gas or coal, not oil. But hear me out.

Here's an article from Scientific American, describing how we could have 65% solar grid by 2050 and nearly 100% solar by 2100. The public money spent over about 20 years to achieve this is about 1/4 what we now give oil companies in subsidies, and about 1/40 the total hidden costs of oil.

Scientific America Solar Grand Plan
sciam.com/article.cfm?...

I know of seven solar thermal companies already operating in the U.S. Green Wombat website has several articles about what is already happening in California.
blogs.business2.com/gr...

Here's what one of these companies, Ausra has to say.

"Solar thermal power plants such as Ausra's generate electricity by driving steam turbines with sunshine. Ausra's solar concentrators boil water with focused sunlight, and produce electricity at prices directly competitive with gas- and coal-fired electric power."

"Solar is one the most land-efficient sources of clean power we have, using a fraction of the area needed by hydro or wind projects of comparable output. All of America's needs for electric power – the entire US grid, night and day – can be generated with Ausra's current technology using a square parcel of land 92 miles on a side. For comparison, this is less than 1% of America's deserts, less land than currently in use in the U.S. for coal mines."

"Solar thermal power plants can store energy during daylight hours and generate power when it's needed. Ausra's power plants collect the sun's energy as heat; Ausra is developing thermal energy storage systems which can store enough heat to run the power plant for up to 20 hours during dark or cloudy periods."

Concentrating photovoltaic has similar potential to solar thermal. The article in Scientific American talks of using both.

All fossil fuels are subsidized and so is nuclear. The amount that we are subsidizing renewable energy is miniscule compared to the subsidies for fossil fuels. Whoever is arguing against solar because of subsidies is way off the mark.

Too much disinformation, too many naysayers. We just need political will to do what's right.

[frflyer]

I forgot to add, that once we have a clean grid, all electric cars will make great sense. They can be phased in as the grid is converted over time.

[Al Nieder]

All of the 'answers' are right - to an extent. "Peak oil' is an approximation when the world reaches the max production rate - it is extrapolated from 100 years of experience with well drilling, production, depletion, and takes into account new trechnologies, costs, liklihood of new finds, etc.. Not mentioned in '$100 oil' is the depreciating value of the US dollar (compared to other currencies), and political decisions that deny drilling, mining, refining, etc. 'Parity' should mean free market value. However, discussion usually avoides mention of huge subsidies given to renewable energy sources and high taxes on 'normal' energy sources.

Coal, oil, gas, nuclear, wind, biofuel, or solar - Engineers, operators, and financiers are being asked to commit their resources now on prospects that take years to develop and longer to pay off. IF it were so easy, then 'it' would have already happened long ago, and every fund manager in the world would be 100% invested only in 'it.'

Reality is that lawyers, governments, and environmentalists are unpredictable limiting factors at the forefront for taxing, stifling, and 'not in my backyard' outcomes that skew any reasonable effort. They consume reources, don't produce anything - and they're not investing their money. Simple example: California mandated 15% electricity must be produced from renewable sources. As soon as industry planned wind farms at the most suitable places, environmentalists blocked them. The same now expect CA to get renewable power from AZ and NV. In any case, results will cost more and take longer to build transmission lines. Expect NV and AZ to tax that. Al Nieder, P.E.

[pritchet1]

You might be interested in viewing the videos at the "Energy Non-Crisis" link and what Lindsay Williams has to say about the Prudhoe Bay Political angle issues... -
peswiki.com/index.php/...

[pritchet1]

Copy/paste the whole link.
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[Tom B]

Oil and coal have subsidies and hidden costs. If these externalities were eliminated, renewables would look more competitive.

Having said that, Ira Flatow (Science Friday) had a guest who proposed 1) putting in a hefty carbon tax 2) compensating by reducing income taxes. This makes a HUGE amount of sense. The only barrier --and it's a huge one-- is that the public would assume is was some kind of "trick". You'd need to do it in a bipartisan manner-- like that's going to happen!

[Thinkingahead]

Think for a second how powerful gasoline is. A single gallon of it will propel me, three other people, all our stuff and my 4000 lb car over a highway for 25miles! Nothing else comes close to the power and portability of gasoline. And most of the world's oil is used for transportation - not power generation. There is a reason every major integrated giant and NOC is willing to bet billions to find and develop oil reserves that are 3 MILES under water and 5 MILES deeper below the sea bed. Smart investors will be making big$ on oil for decades.

[joelsk44039]

Our company has some 12 renewable energy projects in development right now. They are all biomass projects that utilize gasification to extract the energy from the feedstocks, which include dairy and feedlot cattle manures, wood waste, auto fluff, MSW and sewage sludge. All of these "waste commodities" are growing in volume, meaning they won't reach "peak" output in the foreseeable future.

Solar and wind power aren't dispatchable -- they can't be depended on 100% of the time. Biomass gasification is a well-tested, mature technology and I believe its time is here. It's time to think "brown is green."


Joel Keller
joel.keller@randaenerg...

[tufenuf]

And lets not forget why this administration is dragging its feet on the oil issue...and about "not myback yard" How about when they tell you they are building a nuke plant in yours? What about storing THAT waste? Any one hear about the recent scare in Long Island? I don't know about you but I definitely don"t want That in MY back yard!

[tntgators]

WOW. A bunch of good answers and all partially correct. Free market baby! Keep the government out of it! When gas gets too expensive people will start conserving and will naturally turn to new sources. Study history and you'll see necessity is the mother of invention. When politicians push an agenda the outcomes are not good. From the 70's on we have wasted money pushing renewable resources with no real advantages. All energy sources in the future will have a place and as oil gets more expensive and technologies of renewables gets cheaper........ people will change over without you, your senator or anyone else doing anything. Sit back and watch it happen and the trick is knowing what and when to buy.

[Fred Mitchel]

A benefit of solar not mentioned is that it takes heat energy out of our atmosphere directly (from the sunlight used) and converts it to kinetic energy, such as electric motors. This directly helps reduce global warming, in addition to the lack of CO2 produced.

[jmmx]

vboring

You leave out all the subsidies for the oil and coal industry. Especially the $1 Trillion war in Iraq. that is one hell of a subsidy to the tune of about $30,000 per family.

Also there is the cost of pollution and dealing with the effects of global warming. These will become massive subsidies.