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Trends In The Cost Of Energy

Apr. 05, 2013 6:15 PM ETOIL-OLD, GAZ-OLD, KOL, FAN, TAN136 Comments
Zoltan Kiss profile picture
Zoltan Kiss


Energy is the largest component of the world's Gross Domestic Product. It is a measure of our state of civilization. Its availability determines our standard of living, but also threatens to undermine it: the excessive use of stored energy through burning fossil fuels is a cause of Climate Change. Now, the depletion of these fuels will force us to reinvent how we can continue to advance our civilization in a sustainable manner.

The phenomenon of climate change was identified first in the nineteenth century. By the end of the twentieth century, a consensus evolved in the scientific community as well as among progressive political establishments about the need to limit global warming, but a global response has proved elusive until now.

Over the last half century a number of significant changes to our energy outlook have emerged. In 1949 M. King Hubbert, an Exxon engineer, predicted that oil production in the US would peak in 1971.

This prediction was correct within days. The Global Hubbert's peak (GHP) has been followed by a decline in fossil fuel reserves. A number of other transformational developments have occurred over the same time frame, including:

i. the emergence of cost effective renewable energy sources, particularly Solar Photovoltaic (PV).

ii. with new extraction technology, large amounts of local natural gas reserves have become accessible to dramatically change energy politics. This recent discovery of recoverable natural gas, together with the rapidly advancing renewable industry, gives the US local options not expected a decade ago. The US again has a realistically independent energy future.

In this article, the cost evolution of a variety of energy sources is examined. In particular, the role of renewable "Electronic Energy" in the form of PV will be examined in detail. The author shows data indicating that by 2020, photovoltaic electricity will be the lowest cost electrical energy

This article was written by

Zoltan Kiss profile picture
As a pioneer in the renewable energy industry, I continue to work in developing the next generation of SPV technology, based on multi-junction thin films. I am also involved in renewable energy storage technologies based on a combination of batteries and hydrogen. My research and writing examine the difficulties of the present economic system and searches for solutions that can bring about changes without violence in our society. My efforts focus on creating a new paradigm of self-sustaining economic communities (SSECs) in which all members of the community have the opportunity to succeed and to contribute to the common good, and in which renewable energy plays a central role. My theory is based on decades of research in energy, technology, economics, sociology, and business. I hold 25 technology patents, and have published more than 120 articles detailing my work in physics, engineering, and technology. My theories address some of the most profound problems our world faces. I founded Optel, in 1970, to manufacture liquid crystal displays, and Chronar Corporation, in 1976, to commercialize thin film photovoltaic technology based on amorphous silicon. I headed up technical development of a manufacturing process for amorphous silicon, and, in 1982, oversaw the construction of the world's first amorphous silicon manufacturing facility in Port Jervis, New York. Over 20 such manufacturing facilities built by Chronar are currently in operation throughout the world. Chronar also established the world's first amorphous silicon 100-kilowatt utility interactive photovoltaic power source in Birmingham, Alabama. Today, my work centers on creating SSECs that harness the power of renewable energy, and help create equality and prosperity for all members of the communities. I am currently writing a book that details how SSECs can help solve energy, economic, and value crises that will, in turn, help humanity achieve more of its potential. I was an NRC scholar from Canada, and spent two years in Oxford, working on lasers and nuclear polarization. I speak English, Hungarian, German, and French.

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Comments (139)

Energy Value profile picture
Zoltan - Very well assembled and thought out article. A few points -

1. The all in cost for PV solar energy is a bit higher due to a factor not taken into consideration here. Continual exposure of modern PV panels to elements (wind, rain, freeze/thaw cycles) causes an exponential decay form the initial efficiency performance. If it starts out at 5% efficiency in year 1, one freeze/thaw wind/rain cycle later, you're seeing 4.9% efficiency... which means that the generating capacity of a field of PV arrays is on average something around 60% the initial output when they're first set up... and the cost of those PV panels and the labor to replace them by somewhere between the 12th and 18th year isn't something I see factored into these cost models. This is a significant component of the overall cost equation (much like drilling and completion costs are for oil wells - where depreciation of these expenses is a huge component of the financial models). I'm wondering, have you actually built a one or two decade horizon financial model of the all-in costs / KWH that accounts for yearly depreciation of labor and material and accounts for yearly expected degradation in the efficiency of each panel? I would be very interested in looking at such a model. The points laid out in this article are a good start but really need these two layers added on before it can be taken as realistic.

2. Current industrial solar generating capacity mainly comes from heliostat based generation systems. For these installations the yearly material and labor depreciation is truly small (not zero, but small)... and they really do compete with oil-fired generation / KWH (not with coal or gas, but they do beat oil-fired generation). Given the mass deployment of these type of solar installations in the US and North African market today, I wonder if you could also add a measurement of the generation costs of this class of facilities... these actually should be much lower cost than industrial deployment of PV arrays because of the much lower equipment degradation and capital depreciation over time.
fhbecker profile picture
Read one of Zoltan's other articles, thought he did a good job on the topic, but I got lost a lot.
Made it to the third paragraph on this one, and now I realize that he just makes up some of his information. K. Hubbard worked for Shell not Exxon. Sad. Now one need to check everything else he claims is true.
This is a very important article which should be read by anyone seriously interested in the future of solar energy.
Well done article. I have some comments. One is political The citizens of the USA subsidize fossil fuels and this affects the costs. I think that $50B-$100B in direct subsides, $300B-$500B in cleaning the environment and health issues and $200B to $400B in military efforts in the middle east should be figured in.

Outside of that natural gas is much less abundant than coal and if we used this for massive electric we might find ourselves soon looking at this shortage. I think the best solution is daytime solar/wind and nighttime natural gas. This takes care of peak demand between the air conditioner times for 1pm to 6pm and then less usage during the evening.

PV is certainly a better deal than thin film right now and I think with the current components that will be true. The Holy Grail will be the nano structures on plastics. Right now they are playing with new nano structures and spectrum attraction. It still looks like 5 years off and maybe more for commercialization. Still billions of reactions to one sun vs today's one reaction to one sun will certainly make a big difference.
08 Apr. 2013
Here are a couple of important items to factor into your analysis of this article. Proven oil reserves worldwide have increased from 642 BB in 1980 to 1.474 TB in 2011. Info from the US Energy Information Agency (EIA). While US Proved Reserves are down from the 1970's, the EIA's recent report from Aug. of 2012 shows the US reserves increased by 12.8% in 2010 to a total of 25.2 BB. Per the agency's website "proved reserves of U.S. oil and natural gas in 2010 rose by the highest amounts recorded since the U.S. Energy Information Administration (EIA) began publishing proved reserves estimates in 1977." Next report due later this month. In Feb. 2013, the USGS published a report on the oil resources in the Green River Basins. Their summary: "Using a geology-based assessment methodology, the U.S. Geological Survey estimated a total of 4.285 trillion barrels of oil in-place in the oil shale of the three principal basins of the Eocene Green River Formation. Using oil shale cutoffs of potentially viable (15 gallons per ton) and high grade (25 gallons per ton), it is estimated that between 353 billion and 1.146 trillion barrels of the in-place resource have a high potential for development." Recall from the Worldwide data above, that this US amount would nearly equal the total Worldwide reserves for 2011. Proved reserves are of course changing all the time, usually upwards. In 1980, according to the EIA, the US had 31.3 BB of proved oil reserves. However, between 1980 and 2010, the United States produced 77.8 BB of oil and still had 20.7 BB of oil reserves left. So, between 1980 and 2010, the United States produced 2.5 times the amount of oil as it had proved oil reserves in 1980.

As far as Global Warming is concerned, please look at the HadCRUT4 temperature data recently released. A strong flattening of the temperature curve can be seen starting around 2000 at the same time the amount of CO2 has been increasing. The HadCRUT4 temperature data is what is used by the IPCC to monitor global temperature. Perhaps this 10 to 15 year period is too small to draw conclusions, but should at least provide an impetus for climate scientist to review their algorithms which all predicted continued steep increases in global temperatures which have not materialized.
ephud profile picture

"Proven oil reserves worldwide have increased from 642 BB in 1980 to 1.474 TB in 2011"

No even close. Proven reserves have increased by more than that from the tar sands in Colorado and Utah alone.

"USGS estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions......At the midpoint of this estimate, almost half of the 3 trillion barrels of oil would be recoverable. This is an amount about equal to the entire world’s proven oil reserves"

JRP3 profile picture
"A strong flattening of the temperature curve can be seen starting around 2000 at the same time the amount of CO2 has been increasing."

2000 was also the beginning of a decrease in sun spot activity, lower than normal, which has only recently started to increase once again. So the fact that we still saw increasing temperatures during a slightly longer period of low sunspot activity would suggest some other warming influence still in effect. If sun spot activity picks up again as it has in the past we may again see a steeper climb in temperatures.
Freddy Hutter, TrendLines Research profile picture
ephud, you are confusing proved reserves (1p) with probable reserves (2P), possible reserves (3P) and contingent resource (uneconomic). Only when the two other categories of reserves are included does the volume jump from 1.4-Tb to 6.9-Tb. They generally have technical or environmental issues preventing immediate development. As crude price rises over the decades, some of contingent resource will be transferred to the reserve tally. In short, each $1/barrel increase adds 26 billion barrels to reserves.

URR/EUR charts: http://bit.ly/oa0MbC
Zoltan Kiss profile picture
"ephud" Sorry for making an error with the reference. Actually the reference used is ) http://bit.ly/10LkiMz
Hopefully it is helpful
Zoltan Kiss profile picture
"Daniel Holzman" Thank you for your clear description of your Utah project. Since your statement 'the author has grossly understated the actual cost of delivered solar power" goes to the heart of my article,
I would like to present again some of my arguments. Your conclusion is that the cost of electricity in your Utah project is $0.11/kWh. Note
in the table in my article for 2010 I quote $0.10/kWh. In my calculations I use 2000 hours of insolation per year, instead of your 1750 hours. Just taking only this into account, your cost of electricity would come out at $0.09/kWh. The article is conservative compared with your number.
It is sad and telling, that your installation, typical of other installations in the US compared to the rest of the world is too expensive. You arrive at $4.0 per watt, when in Europe e.g., Germany there were installations in 2012 at $2.0 per watt and in China under $1.50 per watt. We in the US better figure out quickly what is the reason for this discrepancy.
As to the cost in 2020, rereading the article, the argument for 22% TFGPV module and $1.0 installed system cost leading to $0.05/kWh
electricity cost is not "grossly understating the cost"
It just came to my attention, that for delivery in 2014 contract has been signed in China for installed system cost at about $1 per watt.
ephud profile picture

"A further reference comes from the experience of the most active player in the nuclear power industry, Electricite de France (EDF)."

Could you please provide the correct link to "A further reference"? It's the same link as "A first reference".
Zoltan Kiss profile picture
"Richard Berger" You summarize succintly the weakness of my article for the "Seeking Alpha" community, there is no actionable investment advice. You are correct. I am hoping to get help on that from all of you.
But surely if PV will generate electricity at $0.01/kWh in less than 50 years, we are witnessing the largest industry on earth developing.
There are some early forecast by Shell that PV will be the largest component in the energy mix by 2030. Let us figure out how to benefit from that. The PV industry is in a real turmoil today. The PV technology will again have to undero a generatinal change to reach that ultimate goal of $0.01/kWh. I tried to make a roadmap for that transition in my acticle. Let us help this transition by investing in the industry.
Zoltan Kiss profile picture
Some further answers on your comments; "Pompanofrog", Please explain your question." what payback period do you speak of to achieve equilibrium.?"
'blueice" for further information I can recommend the reference in
"Freddy Hutter's" comment. Nice presentation of the simulation data.
"Freddy Hutter" The silly comment you refer to (I am an older fellow, not beyond "silly" comments) is not a prediction. It is closing the loop on the great equation in reference to the simultenous origins of fossil fuels and oxigen. I also would not be too dogmatic on your prediction
of peak CO2 in 1929. Sevaral factors could change that (earthquqake, vulcanic activity) that could bring the CO2 content into that silly range (1000ppm) where I would have trouble breathing.
Interesting article! But a few notes. You mentioned, "we have to consider the reduction of atmospheric O2 to the point when living organisms can not sustain life. " I am not sure this would ever be a problem. The atmosphere is 20.9% O2 now, and humans can tolerate as little as 16% partial pressure with few side effects. But the real reason this wouldn't be a problem that few people realize is that the most prevalent element in the earth's crust by mass is oxygen at 46%! Carbon, on the other hand makes up only 0.03%. (See http://bit.ly/Z3fOSL) So I would suspect that more oxygen would be made available as resources are tapped but there simply isn't enough carbon to make an appreciable difference. Also some research has been done on the effects of CO2 on plants and humans. Apparently plants flourish at double the current CO2 content and also become more drought resistant. Humans begin to see some slight negative effects when amounts reach 1500 ppm or 0.15% (See http://bit.ly/Y7YHMh) and I have a hard time seeing this happening anytime soon (being at ~385 ppm or .0385%) especially as plants and the oceans (full of plankton) start picking up the gas and converting it back to oxygen. So there is really no danger of displacing or using oxygen up with carbon. The financial implications, however, of making CO2 a pollutant are tremendous and negative.
One other note: Since you were mentioning both the pros and cons of each energy source, another strike against wind power--in addition to its intermittent nature--is the noise of the turbines, the death of birds around it (ostensibly because they are painted white which attracts insects) and the interference with weather radars used for severe storm warnings. Some people have also reported sub sonic rumblings which they say have made them ill.
JRP3 profile picture
Bird death is over hyped, windmill kills are a tiny fraction of bird deaths each year. One of the largest causes of flying bird deaths is buildings. No one is suggesting we stop building those or take down existing ones to help the birds.
Excellent article.
However, in estimating costs "to the user" of PV and wind, one needs to factor in the huge subsidies states are giving to developers which will result in much higher costs than the generating costs. And, some states give these subsidies for up to 20 years.
enge2103 profile picture
Has any of you thought about the possibility of creating clean energy through the POX - process, partiel oxidation of coal through incomplete combustion by injecting Air / HP Steam at about 1290°C in a deep underground coal mine, producing about 50% CO and 50% H2, this extracted gas can than above ground being converted into CH4 and through simple catalysis in Methanol, etc. This pilot plant technology exist and has been tried out intensively, for example in Germany and Holland. Also why is nobody given attention to the possibility of reconverting CO2 and H2O over a Nickel catalyst to CH4, etc.
The energy needed in this case could be available from not consumed excess electricity produced by Solar, Wind Turbines, etc, so no need to store electricity. Many refineries and fertilizer plants have excess CO2 available from for example their H2 production plants for sweetening oil-products and producing NH4, so inside refineries and fertilizer plants it could be economically very feasible to convert CO2 + H2 => Ni catalyst => CH4, etc.
All known existing but somewhat forgotten technologies.
Also do not forget the old FISHER TROPSCH SYNTHESIS process, for producing Oilproducts as done now in QATAR, etc?
trader1701 profile picture
This is an excellent, well-thought out article with a few exceptions.
First, there is no consideration of "energy density".
In the case of "PV" , how many square kilometers of land would be required to equal the output of 1 nuclear or gas/coal fired power station (which requires maybe 3 or 4 square kilometers of land)
Assume 100% efficiency of the PV system, under 100% ideal conditions (which, if memory is correct results in approximately 1 KW/square meter of power collected)
Second is maintenance. With few exceptions, nobody seems to take long-term maintenance into their calculations. In the case of PV, the diminishing efficiency of, and eventual disposal/recycling of the PV panels (the chemical composition/toxicity of the PV panels was starting to be discussed, but the sudden silence is deafening) should be factored into any investment decision.
PV will always have "niche" applications, but until the above two factors are addressed, it will only be viable under heavy subsidies. And in this era of global pauperism, energy density/maintenance will remain the primary consideration.
The arthur vastly underestimates the cost of both wind,virtually useless, and solar energy. Vastly underestimates the quantity and expected life of fossil fuel reserves.

This is a political article promoting continued government support of a failed or failing pair of faux industries.
Chicago - Your response is a concise repudiation of both wind and solar. As long as your standard seems to be to meet fact with unsubstantiated opinion, I will meet your standard in opining that your comment is as valid as a repudiation of the auto industry a century ago.
Exbuggywhipmaker profile picture
"Climate Change"...? You bet, tomorrow it's forecast to be 40 deg with some showers, somewhat cooler than today.
If disaster casters had been alive during the ice age, just think of the panic.
So a hundred years from now it is forecast to be 1 degree hotter than today. Also forecast, is a longer growing season, helpful when feeding extra billions of people.
But, the climate fear mongers cry, "all our cities will be underwater!" Will this be from climate change, OR 100 more years of liberal economics?
good numbers but the labor ope costs can come down a lot. You are at $500 per panel. That is around what they get now for a small roof top job. In a large solar farm installation with a panelized set up that should come down a lot. So you are at $30 a square foot, the labor on a wood warehouse roof is more like $2 a square foot. Should be a similar type installation. Techniques will improve with time
DanielHolzman profile picture
First let me say that I appreciate the author providing an understandable, clear thesis, and backing it up with verifiable facts. I always enjoy an article which is articulate and carefully constructed.

Now onto the question of the actual cost per kilowatt hour of electricity, which is generally known in the industry as the levelized cost of power. I believe the author has greatly understated the actual cost of delivered solar power. I will base my comments on a recent solar project in Utah I did the cost estimate for.

This project included approximately 1000 panels, each with a peak output of approximately 300 watts. The capacity factor (ratio of actual energy produced to theoretical energy capable of being produced) for this installation was about 20 percent. This is fairly typical of a North American installation in a relatively sunny area (note that EIA quotes a rate of 19% for Arizona). Therefore, out of the potential 8760 hours in a year, we should expect approximately 1750 actual watt hours of generation.

So assuming the author's estimate of a design life of 20 years, each peak watt of available power from the panels can be expected to generate 1.75 kwh per year, or 35 kwh over the course of the life of the project. Now we turn to the actual cost of the 35 kwh produced.

The actual cost to install a solar panel system includes permitting, design, materials, labor and equipment for installation. In my project, the cost of the panels represented approximately 50 cents per watt. Electrical equipment including an inverter, cabling, safety equipment and connections cost about 50 cents per watt for equipment. The support structure for the panels came in at about 30 cents per watt. Installation costs including profit, overhead, design and permitting came in at about $1.70, for a total installed cost of about $3 per watt.

The total cost per watt over the life of the project includes maintenance, repair, and disposal costs for the panels at the end of their life. Estimating life cycle cost was not part of the project, but a reasonable estimate for all in costs would be about $1 per watt for these items, yielding a total net present value of about $4 per watt. Since we expect to generate 35 kwh for $4, the all in cost per kwh is about 11 cents, which I believe is a reasonable number for current installations.

The author's conclusion that photovoltaic power might come in as low as 5 cents per kwh in 2020 is puzzling. Even assuming 5 percent per decade improvement in efficiency (the author's numbers), there is simply no way to get from 11 cents per kwh in 2013 to 5 cents per kwh in 2020. Note that for my project, only about 17% of the installed cost was for the panels. Most of the installation costs are not susceptible to cost reduction.

One has to be very careful to distinguish between cost of installation and price of installation. The actual cost to install is a function of the price of materials and price of labor, which of course are variable. The price of a project is a function of competitive bidding pressure at the time of installation. The current market for solar panels is very competitive, and low cost panels (in some cases below production cost) are available. Not so for installation, where installers have alternative projects to work on, so installation pricing is relatively firm.

My conclusion is that the levelized cost per kwh of solar is in excess of 10 cents per kwh today, and will drop relatively slowly, perhaps to 8 cents per kwh by 2020. Just how competitive this is with gas, nuclear and wind remains to be seen.
Donald YATES profile picture
Lower cost materials for PV (as identified by Berkeley University) do offer the opportunity for capital cost reduction. I still have $8 per watt PV in use, as manufactured by BP in Australia, some 28 years ago. I am working on PV systems that are a long way south of 20 cents per watt for the collectors

As for reducing the inverter and installation expenditures, switching higher DC voltages around 250 volts vs 12 volts, and robotic-placed plug together panels, should also more than halve these supporting costs. And there are many other financial operational savings possible.

Yes, 'levelised cost per kwh of solar ... in excess of 10 cents per kwh today' is about the norm, but as suggested by those paying wholesale, the gentiles have to pay retail.
mandydrew profile picture
There is some scientific reasoning that solar activity has a significant impact in global temperatures. As the sun now enters a more active phase of solar flairs, those temperatures will drop similar to the mini-ice age experienced in the 17th century. Ironically the presence of greenhouse gases may help compensate for that effect.

There is some economic reasoning that if sea levels are rising and areas being barren due to lack of rain, we would be better focusing our efforts directly to flood defenses, desalination and irrigation and relocation of populations. This is more economic that attempting to control aspects of climate for which ultimately we may have no control. Efforts in combating climate change are causing economic stagnation through high energy prices, which in turn limits our budgets for direct measures now before desperate measures have to be taken.

It should also be said that nuclear power is far from being carbon-neutral in that the cost of construction, transportation of raw materials, handling and burying of waste products should be considered as well as the length of viable and safe operation. Wind power in itself is unreliable and is tarnishing our landscapes.

No mention in the article is made of tidal power, which has the potential to provide a reliable and power source of energy as well as helping with prevention against flooding and coastal erosion, and possibly an impact in tsunami events.
JRP3 profile picture
Last I knew increasing solar flare activity leads to increase in temperatures, not decrease. The mini ice age you refer to was an extended time of unusually low solar activity, known as the maunder Minimum http://bit.ly/Y6hyqX
We are now coming out of a time of lower than usual solar flare activity in the last few years, which may have helped keep temperatures from rising more than they did, in effect masking global warming to some extent. If flare activity picks up as expected things might get rather warm in the next few years.
blueice profile picture
Mr Kiss, CO2 levels have been declining in America for the past five years, despite CONgress...
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