GenerationHub Highlights ScottMadden’s View of Economics of Gas Versus Renewables

September 24, 2015

Economics of Gas Versus Renewables Evaluated by ScottMadden

Wayne Barber, chief analyst for GenerationHub Generation, recently highlighted ScottMadden’s latest Energy Industry Update in his article, “Economics of Gas Versus Renewables Evaluated by ScottMadden.”

“With solar PPAs being signed for less than four cents for the first year of operation, it can be difficult to discern the truth about renewables’ cost competitiveness,” said Chris Vlahoplus, partner and clean tech & sustainability practice leader at ScottMadden. “The answer, as you might expect, is ‘it depends.’ Best case vs. worst case can be drastically different depending upon variables like incentives, cost of gas, and the quality of the renewable resource.”

“A well-placed wind power or solar energy development could prove increasingly cost-competitive with electricity generated by natural gas in today’s changing marketplace, ScottMadden Management Consultants said in a recent report,” said Mr. Barber. “At the right location, subsidized utility-scale solar and unsubsidized wind projects are close to competing with new natural gas-fired generation based on the levelized cost of electricity (LCOE), ScottMadden said in its recent industry update.”

“Siting of solar and wind facilities in high-resource locations, meaning ample sunshine or strong wind speeds, significantly improves project economics, the firm said,” continued Mr. Barber. “High wind and solar resources are 47% and 21% capacity factors, respectively, compared to low-end wind and solar resources of 21% and 13.6% capacity factors, respectively.”

“With high-resource locations, resulting in these higher capacity factors, wind and solar can be cost-competitive with gas-fired generation at reasonable gas prices – “although not necessarily at current low gas prices,” the firm adds. “Henry Hub spot prices are currently running below $3/MMBtu.”

“After estimating average installed costs through 2025, ScottMadden finds the potential for utility-scale solar becoming the least-cost resource is primarily a function of changes in the investment tax credit and declining installed costs,” said Mr. Barber.

Mr. Barber continued, “In the absence of carbon trading or Clean Power Plan impacts, solar subsidized with a 30% federal investment tax credit (ITC) competes with $4/MMBtu natural gas in 2016. After changes to the ITC, solar subsidized with a 10% ITC does not compete with $4/MMBtu natural gas until 2024, assuming continued but decreasing experience curve effects will reduce the cost of solar.”

“Declining installed costs and strong resource availability, as well as aggressive pricing, help explain recent “rock-bottom” power purchase agreements being signed for renewable projects,” ScottMadden said.

“In July 2015, Berkshire Hathaway Energy affiliate NV Energy sought regulatory approval for a 20-year solar PPA with SunPower for a level $46/MWh. This is one of the lowest-cost solar PPAs in the United States as sub-$40/MWh PPAs often include annual escalators,” ScottMadden said in the report.

About Wayne Barber
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 22 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career, he has visited nuclear reactors and coal mines as well as coal and natural gas power plants.

About ScottMadden’s Energy and Clean Tech & Sustainability Practices
Since 1983, we have been consultants to the energy industry. We help our clients develop strategies, improve operations and reorganize companies, and implement initiatives. Leveraging our energy expertise, ScottMadden’s Clean Tech & Sustainability practice helps our clients effectively navigate the quickly changing landscape with sustainable energy strategies and smart portfolio choices.

About ScottMadden, Inc.
ScottMadden is the management consulting firm that does what it takes to get it done right. Our practice areas include Energy, Clean Tech & Sustainability, Corporate & Shared Services, and Grid Transformation. We deliver a broad array of consulting services ranging from strategic planning through implementation across many industries, business units, and functions. To learn more, visit www.scottmadden.com | Twitter | Facebook | LinkedIn

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