Is solar power “the fuel of the future”? Elon Musk thinks so.
The co-inventor of PayPal, now turned alternative energy rock star, has built two companies — solar power utility SolarCity (SCTY) and electric car company Tesla (TSLA) — around the idea that solar-generated electricity is the way to power our cars and save our environment. He’s also working on a third company — SpaceX — which aims to bring mankind a bit closer to that ultimate clean-energy source, the sun.
But is solar power truly the solution to our energy needs? Not necessarily.
Last month, alternative energy analyst Gordon Johnson at Axiom Capital crunched the latest numbers out of the U.S. Energy Information Administration, and published a report on his findings.
The upshot: When it comes to “alternative” ways to generate electricity, solar energy is just about the most expensive form of energy you can get.
Calculating the cost of generating a kilowatt hour of electricity by tallying the cost of building a facility, operating it, and paying for the fuel it consumes — then amortizing all this across all the electricity it’s expected to produce in its lifetime — Johnson points out that solar photovoltaic power costs about 22 cents a kwh. Solar thermal power, where sunbeams are reflected and concentrated on a heat-retaining medium such as salt or graphite to store heat for later use in generating electricity, costs even more — about 32 cents a kwh.
What forms of energy are cheaper than these? Pretty much any that you might think of.
Electricity generated by running water through a dam’s turbines costs about 9 cents a kwh generated. That’s less than half the cost of electricity generated from “ordinary” solar panels. More than three times less than solar thermal power. And hydropower may be even cheaper than what the EIA says it is.
The Hoover Dam, for example, is said to wholesale the electricity it generates for as little as 1.6 cents a kwh — about a penny-and-a-half.
Say what you will about the downsides of wind power — that windmills kill birds and bats, that they allegedly induce headaches in their neighbors — one thing’s for sure: Wind power is a whole lot cheaper than solar.
EIA estimates say that amortized over their lifetime, windmills generate electricity for a cost of just 10 cents a kwh on average — on par with hydro, and far cheaper than solar.
Across the ocean, the European Wind Energy Association claims that some of its member projects are generating electricity at a cost of as little as 5 cents a kwh.
There’s also geothermal energy — which uses the differential between near-constant temperatures below-ground and temperatures up here to create energy.
Because geothermal energy equipment is of necessity buried, it costs a bit more to maintain it. But total costs tend to average around 10 cents a kwh — similar to wind, and not much more than hydro. But again, a heck of a lot cheaper than solar. Indeed, at the Geysers power plant in California, geothermal energy is sold for as little as 3 cents a kwh.
Seeing as the nuclear power plants been around since the 1950s, you may not think of nuclear power as being particularly “alternative.” But it doesn’t produce greenhouse gases, and it does produce electricity.
And at just 11 cents a kwh to pay for electrons generated by the latest generation of nuclear reactors, it’s definitely in the hunt to underprice solar. In France, where they do nuclear power at scale, utility company Electricite de France sells nuclear-generated electricity for about 5 cents a kwh.
Perhaps the most “alternative” of energies — in the sense that it’s so counterintuitive that you’d never think of it as alternative — is coal. More specifically, coal burned in high-tech facilities that scrub out the pollutants, known by the seeming oxymoron “clean coal.”
According to the EIA, if you take all the cost of creating a real clean coal industry with the latest scrubbing equipment factored in, then add the cost of developing technology to sequester carbon emissions and inject them deep underground so they can’t leak back out, plus the cost of the coal itself … you’re still likely to come up with an average cost that’s about 59 percent that of solar — 13 cents a kwh.
But… Solar Power’s Going to Get Cheaper, Right?
So solar power is more expensive than all these other forms of alternative energy. But here’s the worst part: Solar enthusiasts argue that as their industry gains scale, and the cost of producing solar panels falls, solar will become more cost-competitive with other forms of energy — and that’s simply not true.
Solar panel costs fell 53 percent in 2012. But the module cost makes up only about 33 percent of the total cost of building, operating, and maintaining a solar plant.
Panel mountings, solar power inverters, transmission cables, and more mundane costs such as paying the construction workers and buying or leasing land — these all cost money too, and aren’t subject to cheapening through scale.
Result: Falling module prices don’t necessarily make solar plants cheaper to operate.
Long story short: You can have your solar power if you want it. But do expect to pay through the nose for it — because the EIA’s numbers don’t lie, and solar power doesn’t come cheap.
Motley Fool contributor Rich Smith does not own shares of any solar or electric car company named above. (Go figure.) But The Motley Fool recommends and owns shares of Tesla Motors.