Several studies have reported significant declines in the unit costs of renewable energy technologies over the past two decades in photovoltaics, solar-thermal, wind, and the use of biomass for producing electricity and liquid fuels and it is now clear that further reductions in costs can be expected with technical progress and market growth. Changes in relative costs are beginning to alter the comparative economics of the production of energy from fossil, nuclear, and renewable resources in important ways.
This paper examines the evidence on the historic and projected costs of selected renewable energy technologies and assesses developments. It reviews estimates from more than 50 studies and expresses the costs on a common basis. There are many excellent studies available, and those familiar with them will also be familiar with the results presented here. On reviewing the material, we found that it frequently estimated costs in different ways, used different discount rates, and included or excluded particular components of cost. Moreover, some of the works were tabletop studies, whereas others used actual costs and commercial data Hence, to assess how costs are actually changing and to assess prospects for further developments, we tried to iron out these inconsistencies. It was not possible do this completely in every case, and some inconsistencies and ambiguities in the costs remain' but the uncertainties, we think have been reduced, and the trends are fairly clear. Yet even when this is done, unit costs differ appreciably because they relate to different technologies in different stages of development, as would be expected for newly emerging technologies and when the competition among approaches is both intense and economically healthy.
This paper was prepared for the Global Environment Facility (GEE:), as an input to its inquiries on cost-effective options for abating emissions of carbon dioxide. It concentrates on three types of renewable energy: photovoltaics, solar-thermal, and the use of biomass for producing electricity and liquid fuels. Developments of other renewables, such as wind and ocean systems, also have been notable but are left for a separate study. Brief descriptions and analyses of the various technologies are provided, but these, it should be noted, are no substitute for the excellent and encyclopedic edition of studies, Renewable Energy: Sources for Fuel and Electricity (Johansson and others 1993).
Costs have been calculated in 1990 prices. All relevant data, assumptions, and sources are tabulated in the annexes. The estimates presented below are actual figures up to 1992 and projections thereafter.
Figure 1.1 summarizes the main findings. The data' mostly from Brazil and the United States, show the costs of ethanol production from different raw materials ore, sugarcane, and cellulosic materials compared with the ex-refinery costs of gasoline. The large variance in costs is mainly caused by the differing; costs of the raw materials, which account for 60 to 80 percent of total costs.
Figure 1.1. Cost of Ethanol Production Compared with Gasoline Prices, 1977-2020
The decline in costs since the 1970s has been significant and is attributable to technology improvements and a shift toward cheaper crops. The outliers in the 1970s were corn crops in the United States, the costs of ethanol from sugarcane in Brazil being much lower; but costs have since declined for both types of material. The recent emergence of low-cost cellulosic materialswoody materials and agricultural residuesfor ethanol production has been made possible by advances in biotechnology for converting the sugars in the materials to ethanol, and these advances promise further reductions in costs. Cellulosic materials have the advantage of not competing with food crops for land, which also helps to reduce costs. The costs of ethanol were beginning to compare well with gasoline until the collapse of oil prices in the mid-1980s.
The costs of electricity from biomass show great variability, even for co-generation plants using waste materials and residues. The boiler and generator technologies now in use are standard, have been used for many decades, and have seen no obvious decline in costs in recent years. Costs are site specific and vary with raw material costs; but, as Figure 1.2 shows, they compare well with the costs of fossil-fired generation and even hydro generation in favorable situations; some are as low as 2 to 4 cents per kilowatt hour.
Figure 1.2. Cost of Electricity from Biomass. 1985-2000
The recent proposals to use biomass gasification combined-cycle technologies show much promise for reducing costs for large-scale power generation again in areas where wood yields are good. Another much-discussed way of reducing net costs (not studied here) is to use the schemes where they can serve more than one purpose, such as reforestation, restoration of degraded land, protection of watersheds, and generation of electricity.
Recent experience with solar-thermal dates back only to the mid-1980s. Costs show much variability becausewith the notable exception of the parabolic trough technologyall are in the experimental stage. Figure 13 shows the current and projected costs of generation from the three main technologies for larger-scale generation of about 50 MW and up wardpabolic trough, central receiver, and parabolic dish. Experience to date and engineering analysis both point consistently to costs in the 5 to 10 cents per kilowatt hour range in the next generation of schemes.
Figure 1.3. Calculated Cost d Electricity from Large-Scale Solar-Thermal Technologies, 1906 2010
Three other factors deserve special mention: the possibilities for low-cost thermal storage, so schemes can be operated in the evenings or on cloudy days; the high temperatures the central receiver technologies now being tested, which promise high conversion efficiencies; and short lead times for construction and installation (recent parabolic trough schemes in California were installed and operating within a year).
Costs of photovoltaic modules have decreased by a factor of 10 over the past 15 years and by more than 50 since the early 1970s (Figure 1.4). The dispersion in the cost data shown in the figure reflects the wide range of modules now under development; the size of the consumer's order also has an effect on unit costs. The general decrease in costs is clear from the data and can be attributed to technical progress in materials, to cell design and manufacturing methods, and to scale economies in manufacturing and gains in PV production experience. Large gains have also been made in conversion efficiencies, from about 7 percent for crystalline silicon modules in 1976 to 13 percent today. For amorphous silicon, stabilized efficiencies of mono-junctional laboratory cells rose from less than 1 percent to more than 6 percent in the same period.
Figure 1.4. Costs of Photovoltaic Nodules 1972-2010
The possibilities for reducing costs further are far from being exhausted. The following are among the key developments taking
· The use of multijunction devices to improve conversion efficiencies
· Further developments in concentrator cells (already achieving efficiencies of more than 28 percent with crystalline silicon and 27 to 30 percent with gallium arsenide)
· New materials for thin-film devices, now ready for commercial production
· Improvements in cell design to improve photon capture and reduce resistive losses
Introduction of batch production processes in manufacturing, which should also lead to significant scale economies.
The world market for PVs is still small, having increased from less than 1 MW in 1978 to 57.9 MW in 1992, and it is generally expected that the above developments will tend to appreciable reductions in costs as the market expands further and manufacturers move to larger production volumes. Numerous small-scale applications are now economical (see chapter 4).
Wind energy technologies are not reviewed here, but their costs fall into the same pattern as that for the other renewable energy technologies discussed, and for much the same reasonstechnical progress in the design of the machines, short lead times, and scale economies in manufacture. Costs have declined to the range of 6 to 10 cents per kWh in the past eight years, and wind turbines are becoming established as a commercial source of supplementary power in areas with favorable wind regimes. Figure 1.5 shows some data for California, taken from Cavallo, Hock, and Smith (1993), who project costs in the 4 to cents per kilowatt hour range with the new generation of technologies. Offshore systems are also under development.
Progress in renewable energy technologies has been positive; the reported reductions in costs, improvements in conversion efficiencies, and technical progress in manufacturing are all well founded, and there are convincing engineering economic reasons for expecting efficiencies to improve and costs to fall further. By financing applications of renewables in electricity generation, the GEF and the World Bank will help to develop markets, reduce costs, and demonstrate the technologies.
The applications are likely to be on a small scale in the near term, although with "bundling" the potential applications are sufficiently numerous that large-scale programs could be formulated Solar-thermal would be suitable for larger-scale generation already if there were a greater commitment to its development and application in national R&D and demonstration programs.
Figure 1.5. Cost of Electricity from Wind Turbines In California, 1985-1995
· Specific types of investments that can be recommended confidently on the basis of this review include the following:
· Expanded use of PVs for small-scale applications in high-insolation areas. For many purposes they are already the least-cost option. Costs and performance compare well with diesel generation, for example, and sometimes with grid-supplied electricity in rural areas, depending on the community's distance from the grid.
· Use of PVs to provide supplementary power on grid-connected distribution systems, if the peak load matches solar insolation. (Wind energy, which is not reviewed below, also shows much promise for this purpose and could also be a good complement to existing hydro schemes.)
· Expanded use of thermal-solar schemes for power generation on pilot basis. A series of 100 to 200 MW of pilot projects in selected countries, financed on a concessionary basis, and perhaps built and operated under collaborative international arrangements, would do much to establish the technology. It is already competitive with nuclear energy, and prospectively with hydro energy.
· Use of biomass for power generation. Modeled on the forthcoming GEF project in Brazil, this type of activity is another promising area of investment.
Costs considered in this review are hardware costs. In the comparisons of costs with conventional energy sources at a particular site, four factors are especially important to bear in mind. First, since markets are still small, transaction costs tend to be a large component of overall costs. These include the installation, operational, and reaming costs of setting up and using a technology for the first time and of providing customer services. The GEF is to make a special study of this problem. The general assessment, however, is that these costs will decline appreciably as markest increase.
Second, scale economies and the gains from technical progress as applications increase are likely to be large during the next two decades. This means that marginal costs will be much less than average costs, and there is a good case for public policies to support the development and use of the technologies through tax incentives, financial support through public R&D programs, and other financial facilities such as the GEF. It is in fact remarkable how much has been accomplished over the past two decades, given the limited financial support for renewables. In the industrial countries, solar energy receives minuscule funding compared with fossil and nuclear technologies (about 5 percent of public R&D in energy), despite its promise.
Third, the analysis of investments needs to take into account the environmental costs and benefits of the technologies.
Fourth, attention will need to be given to deformities in energy prices. The sad fact is that the "playing field is not lever' when it comes to competition between renewables and conventional fuels. Aside from the distortions just noted in public R&D policies, two further examples will suffice to make the point. One is the absence of peak-load pricing for electricity. The costs of meeting peak demands are two to three tunes those of meeting base-load demands in many countries. Peak-load costs are about 15 to 20 gents per kilowatt hour, depending on the system and the patterns of demand, compared with average costs of about 5 to 8 cents per kilowatt hour (for a base-load plant). The adoption of peak-load pricing would provide a significant stimulus to the development of short-term storage technologies for solar energy. The other example is rural electrification, which is widely subsidized, again making it difficult for the renewable energy alternatives (and PVs in particular) to compete in applications for which they would otherwise be, for consumers, the financially more attractive alternative. Removing such distortions in public policy will do much to facilitate the development and use of renewable energy.