When does solar power make economic sense?
In Botswana, the World Bank is preparing to help finance a huge new coal-fired electricity plant, writes the Center for Global Development's David Wheeler. The plant will emit 17-19 million tons of CO2 a year, but the bank is justifying its assistance under the rationale that the "super-critical" high-efficiency coal combustion technology employed at the plant will be less harmful to the environment than the conventional coal combustion technology Botswana would be forced to adopt without outside financing.
Wheeler argues that it would make far more sense for the World Bank to funnel its investment into a solar thermal power plant. At present, electricity generated from solar thermal power is more expensive than electricity generated from coal, but only if you don't take into account the external costs associated with greenhouse gas emissions. Wheeler argues that if you price in a reasonable fee for generating carbon dioxide, solar thermal suddenly makes sense. According to Wheeler's calculations, different varieties of solar thermal power technology become competitive with super-critical coal combustion when the price of emitting a ton of carbon dioxide hits a range between $35 and $60 a ton.
Such prices are not beyond reason -- the current price of a ton of carbon dioxide emissions in Europe is around $32. Wheeler argues strenuously that the World Bank should be incorporating a reasonable CO2 price as part of its cost-benefit calculations for participating in any new energy infrastructure development. If it did so in Botswana, the proposed Mmamabula super-critical coal-fired electricity plant would be off the table.
On the other side of the world from Botswana, in Berkeley, Calif., University of California business professor Severin Borenstein recently released a study pooh-poohing the rollout of solar photovoltaic panels on residential homes as economically pointless. The cost of a 10 kilowatt system, he argues, would be three or four times the value of the electricity produced. In the context of the solar power boom that is currently sweeping California, the study makes for an interesting read, and the solar power industry is pushing back hard against its conclusions.
Borenstein doesn't explicitly take into account external factors such as the environment, but he does devote one paragraph to calculating what kind of carbon dioxide price tag would have to be levied to make the photovoltaic panels cost-competitive. The numbers he comes up with are huge: $300 per ton as compared with coal, and $600 per ton as compared with natural gas.
If we accept Wheeler and Borenstein's figures, what do we learn? That perhaps a big centralized solar thermal power plant in Botswana (or the Mojave Desert) makes a lot more economic sense than putting solar photovoltaic panels on my house in Berkeley?
Of course, we don't have to accept the figures. We can argue until the cows come home about the myriad assumptions that are built into every energy cost-benefit calculation. Or we can fall back on a kind of faith-based analysis: renewable equals good, fossil fuel equals bad.
But what I take away from the combination of Borenstein and Wheeler's paper is that in choosing between various kinds of renewable technologies, figuring out the carbon dioxide price point at which a particular renewable source of energy becomes cost-competitive with a fossil-fuel energy source is critical. If it's $600 per ton, forget about it. If it's $30, full speed ahead.