Solar Is the Hands-Down Winner

 | Nov 23, 2013 | 5:00 PM EST
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In the next 10 years, the equivalent of 25 new nuclear power plants will be invested in solar, wind, biomass, waste-to-energy and other renewable energy resources. The big winners will be wind and solar.

It is happening because more than 20 states passed dozens of statues and regulations to encourage the development of renewable energy. Most states have multi-year plans where load-serving entities are required by law to mix renewable energy with the electric power they deliver to consumers. For most states, the percentage of renewable energy increases each year for the next 10-15 years. 

Behind this push is the federal Clean Air Act (CAA). It is the primary driver, but not the only driver. When a state finds itself with one or more CAA nonattainment designations, the state loses authority to issue new air permits. Consequently, 21 states and the District of Columbia each designed Renewables Portfolio Standards (RPS) as one of solution to achieve attainment.

While they may not have nonattainment designations yet, more states are joining in. Wanting to avoid nonattainment designation, some states are designing RPS programs to provide them with breathing room.

Speaking about breathing room, state policymakers find constituents wanting cleaner air. They are also finding renewable energy is cheaper than the alternative.

The combination of renewable energy's capital and production costs beat most other competitors. On the capex side, an offshore wind farm is approximately $5.5 million per megawatt, a utility grade solar farm is approximately $3.7 million per megawatt and a land-based wind farm is approximately $2 million a megawatt.

Compare that with the alternatives. Based on Duke Energy (DUK) and SCANA's (SCG) forecasts, new nuclear plant is at least $6 million per megawatt. Based on Southern's (SO) Kemper County project, a new coal-fired plant is about the same as a new nuclear plant. A combined cycle gas turbine is about $1.5 million per megawatt.

While gas turbines may be relatively cheap to build, they can be expensive to operate. Their production costs are tied to natural gas prices, which can be volatile.

Even if a utility could justify the capex and production costs, states cannot build new gas turbines, even high-technology clean gas facilities in nonattainment areas. They also cannot build in locations that would cause emission drift to settle in another state.

Not only are wind and solar cheaper to build, they can be built faster than nuclear, coal or even compliant natural gas. In addition, wind and solar facilities require less infrastructure. For example, nuclear and coal plants need access to waterways and railways to deliver large plant components and fuel. They also need to build and maintain waste disposal infrastructure to accept waste streams.

Some may incorrectly argue wind and solar have a financial advantage because the federal government offers financial incentives. There are no federal incentives for business-owned solar facilities. After next month, there are no federal incentives for wind turbines. There are federal incentives to build new nuclear plants and new clean coal plants.

Adding up all the capital and production costs, it appears wind may be the hands-down winner. In fact, it comes in second place. Solar power has competitive advantages no other energy source can claim.

  1. There are vast regions in North America where wind levels are simply inadequate for wind power generation. According to U.S. Department of Energy, most Southeastern and Western states do not have enough wind to support land-based wind power.
  2. Solar is a distributed energy source and it is quiet. Consequently, solar power does not always need additional transmission lines. As was learned in Texas and Cape Cod, wind turbines need additional transmission lines because they must be located far from residential communities.
  3. Solar is unobtrusive and it is scalable from rooftops to backyards to farms. Wind requires massive towers to reach winds 80 meters in the sky.
  4. States prefer solar. In fact, at least 10 states carve out solar for special financial treatment. As a result, solar power's top line is frequently healthier than wind power's top line.
  5. Solar power also captures higher markets prices for energy. Unlike wind, solar power production is greatest during daylight hours and summer months. These are the same periods when demand and prices are the highest.

Most other sources will be either inadequate or uneconomic to meet states' growing demand for renewable energy. Most of the heavy lifting will be accomplished by solar and wind, with emphases on solar.

Wind power companies like Broadwind Energy (BWEN) and solar companies like First Solar (FSLR) should do well. The big winner should be companies like SunPower (SPWR). SunPower has a real estate advantage. It takes SunPower less real estate to produce the same amount of power.

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