Renewables Are Starting to Crush Aging U.S. Nukes, Coal Plants

(Bloomberg) -- Building solar and wind farms has started to become a cheaper proposition than running aging coal and nuclear generators in parts of the U.S., according to financial adviser Lazard Ltd.

Take wind: Building and operating a utility-scale farm costs $30 to $60 a megawatt-hour over its lifetime, and that can drop to as low as $14 when factoring in subsidies, according an annual analysis that Lazard’s been performing for a decade. Meanwhile, just keeping an existing coal plant running can cost $26 to $39 and a nuclear one $25 to $32.

Two years ago, “what was interesting to us was the lifetime cost of renewables on an energy basis reached parity with conventional resources in a bunch of geographies in the U.S.,” said Jonathan Mir, head of the North American power group at Lazard. “Now, what we are seeing is that renewable technologies on a fully loaded basis are beating” existing coal and nuclear plants in some regions.

The report by Lazard, whose estimates are widely used in the power sector as benchmarks, comes as President Donald Trump’s administration is vowing to stop the “war on coal” and put America’s miners back to work. Hundreds of power plants burning the fuel have shut in recent years amid escalating competition from natural gas, wind and solar. Energy Secretary Rick Perry has proposed rewarding coal and nuclear plants with extra payments for their dependability, touching off a national debate over the country’s future power mix.

“We still need, in a modern grid, fuel diversification and a diverse generation stack,” Mir said. “So someone has to think hard about how to organize this transition.”

The sudden swings in generation from wind and solar farms remain a challenge for power grid operators, he said. A modern system can handle renewables supplying about 30 percent of its power -- and as much as 50 percent in some cases -- but levels beyond that require storage technologies, he said.

Early Retirements

Gas has helped, backstopping intermittent solar and wind generation. And their combined decline in costs is rapidly changing the U.S. power mix, Mir said. Globally, renewables are set to almost double from last year to make up 51 percent of the mix by 2040, according to Bloomberg New Energy Finance. The challenge of keeping open older plants has arrived faster than expected and more early retirements may ensue, he said.

These days, the most efficient gas-fired plants now cost about $700 a kilowatt to build, down from $1,000 to $1,100 five years ago, Mir said. Rooftop solar remains expensive in the U.S., costing four to five times as much as a utility-sized solar farm.

The drop in renewable energy costs is already changing how utilities operate, Mir said, using American Electric Power Co. as an example. Once the biggest burner of coal in the U.S., AEP is now planning to invest $4.5 billion in wind power and has said it could stop burning the fossil fuel altogether. “AEP is doing this because it is the cheapest way to provide energy,” he said.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Stephen Cunningham

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