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Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

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Monday, April 24, 2017

Stunning cost declines in wind and solar

Even just a few years ago, wind and solar were significantly more expensive than fossil fuels, if you ignored the cost of the externalities which come from adding CO2 to the atmosphere (not to mention all the other pollutants.)

Source
But that's emphatically not true any more.  In the USA, over the last 8 years, the cost of PPAs (power purchase agreements) by utilities for solar have dropped from  $154 per MWh to $35, a compound decline of 19% per annum.   Wind has dropped from $69/MWh to $26/MWh, or lower, since 2009.  That is a compound rate of decline of  13% per annum.  Lazard calculates the LCOE* of coal at between $60 and $143 per MWh.  Even their lowest estimate is twice the cost of wind or solar.  It's telling that there are no PPAs for coal because no one is building new coal power stations.  In fact, they're shuttering existing ones, though their replacements are gas as well as renewables.

It seems very likely that both wind and solar will continue to decline in cost in a classic learning curve way.   But what happens when the Federal tax credit expires?  The data above show the costs after tax credits, which are worth about $20/MWh.  The tax credits expire over the next 4 years.  If costs continue to decline at the same rates as they have done for the past 7 years for the next 4, wind will drop by another 43%, solar by another 57%.  That will take wind and solar to $15/MWh after subsidy, or $35/MWh before, still substantially cheaper than coal.  And that's before any carbon tax.  Make no mistake, if, as seems plausible, the increase in global temperatures is accelerating, a swingeing carbon tax is quite certain within a few years.

[Read more here]

*LCOE = levelised cost of electricity.

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