Costs of Clean Energy vs. Dirty Energy

The following piece was written for Mapawatt by David Spader of SavingsAccount.Org.  I've put Mapawatt Notes in italics and I've linked to Mapawatt blog posts in other areas.


The environmental consequences of burning coal, disposal and potential release problems associated with nuclear facilities, lack of control over global oil resources, and an evolving governmental energy policy are all driving factors behind renewed consideration of greener, cleaner methods of power generation. Wind, solar, geothermal and hydroelectric energy resources are available in unlimited quantities, but utilizing these resources requires significant capital improvements. Energy consumers must ultimately pay for these changes to energy infrastructure. For this reason, price per kilowatt hour is a critical consideration.

Energy produced from coal or oil combustion plants has known production costs. Although pricing fluctuates with supply and demand for the fuel, the fluctuations occur according to known variables and can be reliably predicted. All new technologies without established production infrastructure will initially cost more than coal or oil combustion. To evaluate energy sources comparatively, the cost per unit of energy produced must be considered with a level playing field. The “levelization” process adjusts production costs to include, among other things, all applicable government subsidies and incentives to production companies.

A Comparison Of Energy Generation

The following figures were taken from a report produced by Black and Veatch Corporation, a global engineering firm specializing in infrastructure development. The report was produced for the California Renewable Energy Transmission Initiative, and a PDF of the Final Report can be found can be found on the RETI website. It is important to note that the figures cited in the report are regional values, specific in this case to the West Coast. Figures for the Central Plains or for particularly mountainous regions of the county, such as the Appalachian region, would certainly differ from these results.

(Mapawatt Note: From the Black and Veatch report, "The cost of generation is calculated as a levelized cost of energy (“LCOE”) at the point at which the project will interconnect to the existing transmission system. The LCOE for a project is the total life-cycle cost of generating electricity at the facility normalized by the total generation from the facility and is calculated in terms of dollars per megawatt hour ($/MWh). LCOE provides a consistent basis for comparing the economics of disparate projects across all technologies and ownership." and "necessary modifications to make the calculations appropriate for renewable resources, including the modeling of tax incentives, accelerated depreciation, and other incentives."  The LCOE values are presented below, in $/kWh.)

  • Hydroelectric ..... 0.010 to 0.098 $/kWh
  • Geothermal ..... 0.054 to 0.107 $/kWh
  • Wind ..... 0.059 to 0.128 $/kWh
  • Residential Grid ..... 0.116 to 0.149 $/kWh
  • Offshore Wind ..... 0.142 to 0.232 $/kWh
  • Solar Thermal ..... 0.143 to 0.192 $/kWh
  • Solar Photovoltaic ..... 0.201 to 0.276 $/kWh

(Mapawatt Note:  The Black and Veatch report is actually very interesting and gives you an idea of how complicated it is to compare several different power generation methods.  Keep in mind that the report was generated in 2008 and is specific to California.  Costs for renewables, especially Solar PV, have decreased since then, making some renewables more attractive.  As of February of 2011, there was some significant discrepancy on over which is cheaper, Solar PV or Solar Thermal for large scale power production)

The average American household uses 11,000 kilowatt-hours per year, and cost per kilowatt-hour from the residential grid across the United States actually varied from 7.58 cents per kWh to 24.2 cents per kWh, depending upon the location of the residence and time of the year, in 2009. The figures cited above are for the State of California, since the comparative energy generation costs are also for that region. The comparative costs in the RETI report were published in April of 2008, so some allowance should be made for the difference in timing.

Government Tax Subsidies

Federal, state and local tax incentives available to residential homeowners, commercial business users and large power generation facilities help reduce the initial costs of producing energy from cleaner sources. Federal incentives will be discussed; state incentives vary by state, and so no attempt will be made to list them. Readers should be aware, however, that programs are in place and should also be considered.

(Mapawatt Note: The above mainly focuses on utility scale renewable energy projects; while the below focuses on residential scale projects.  There is an obvious difference in scale, but also in how the technologies are utilized in each setting.)

Solar Energy

Solar energy receives a lot of publicity in the news media. It is also, unfortunately, one of the most expensive clean energy alternatives currently available. The government offers a relatively large incentive for homeowners and businesses to invest in solar energy equipment. A personal income tax credit for up to 30 percent of the purchase cost of a residential solar energy system is available through 2016. Businesses can take advantage of a five year accelerated depreciation incentive to promote additional business investments.

Some states have mandated a renewable energy portfolio that requires energy utilities within the states to generate a certain percentage of electricity from renewable resources within a certain timeframe. The percentages and timeframes vary by state, but all of these mandates create some form of Solar Renewable Energy Credit. These credits are tradable commodities, and utility companies may purchase them from individuals or commercial enterprises to help them meet the statutory mandates.

Most states also have a program for solar energy known as “Net Metering.” Most homeowners with residential solar energy systems still connect to the local power grid. Whenever the energy demand of the residence exceeds the capacity of the solar energy system, the grid provides additional electricity to the home. There are also times when the residential system produces an excess of electricity. Net Metering statutes require electrical utility companies to credit customers for solar photovoltaic generated electricity that they send into the residential grid. Sending energy into the grid actually causes the electric meter to turn backwards, crediting the homeowner for providing solar electricity for other grid users.

Tax incentives, Solar Renewable Energy Credits and Net Metering reduce the costs of solar energy generation to what most homeowners consider a manageable expense. Installation and maintenance costs depend on the size of the system, and the return on investment (ROI) will ultimately depend on the amount of energy consumed at the structure and amount of sunshine at the particular geography. Solar tools and calculators available at a website sponsored by the U.S. Department of Energy, the Solar Electric Power Association, and the American Solar Energy Society suggest that an average household in the United States could expect to spend $35,000 to $52,000 for a 7.8 peak kilowatt system. A system of this size would supply approximately half of the residence’s annual electrical needs and result in an annual utility savings in the $1,000 to $2,000 range. With energy credits and Net Metering, the ROI for such a system would be between 10 and 20 years. The expected lifetime of solar photovoltaic energy systems is 25 years.

(Mapawatt Note: the above mainly covers solar PV electricity production, but don't forget about solar thermal hot water production, which is different from large-scale solar thermal electricity production)

Wind Power

Small wind generating systems are less expensive than solar energy generators (see Mapawatt Note below); turbines are easier to maintain and can lower utility bills from 50 to 90 percent. The wind potential of a particular geographic area can be found by entering a ZIP code into the MyWatts Renewables Estimator at the Choose Renewables website. Wind turbines placed in a suitable location should have an ROI of 15 to 20 years, and the estimated useful life of a turbine is 30 years.

(Mapawatt Note: As we recently covered in our post Residential Clean Energy: Solar PV vs. Wind Turbines, I don't think wind turbines are generating as much power for residential users as manufacturers are claiming.  I told David I dont think his claim that small wind generating systems are less expensive than solar pv systems, as you can't compare initial costs, you have to compare the costs on an "installation costs vs. annual energy produced basis".  It does no good to compare the installation costs of a 3 kW turbine vs. a 3 kW solar array if the turbine never spins and produces energy.  For most homeowners, we believe solar PV is a much better investment)

Hydroelectric Energy

Most people think of large hydroelectric dams as the only source of hydroelectric power. This is not true. Smaller turbine systems called “microhydro” systems are now frequently used to generate 75 to 350 kilowatts of electricity per month simply through placement into the normal flow of a river or large stream. These turbines operate on as little as 2 gallons per minute of water flow and do no damage to downstream ecosystems.

Large systems can cost around $10,000. Manufactures suggest the ROI to be “a few years,” but comparisons with the other figures cited in this document would suggest at least a 6 year ROI.

Microhydro systems are not in widespread usage because the property must be situated on, or with controlling access to, rivers or large streams. The systems would also be expected to have significant maintenance costs because they are located in free flowing water.

(Mapawatt Note: When used in residential settings, I like referring to is as micro-hydro power)

Geothermal Energy

A geothermal heat pump system costs roughly $2,500 per ton of capacity, but typically has a large installation cost. The systems are quite durable because the components are sheltered underground, and most geothermal systems are guaranteed to last from 25 to 50 years. Expected ROI is 10 to 25 years.

(Mapawatt Note: Unlike most of the other sources - solar pv, wind turbine, hydroelectric - in a residential setting, geothermal is only used for heating and cooling, not for producing electricity.  Here's our post on residential geothermal heat pump)

As you can see, comparing costs of clean energy vs. dirty energy isn't always easy, but let me assure's worth it!


David Spader is a freelance writer who normally provides savings accounts reviews over at SavingsAccount.Org. He recently wrote about the best CD Rates available right now.

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Thank you Eric for the numbers you provided. I think you are more correct than the ASES. I will be installing a 5 kw system in a net metering set up for my family of 5 in the hopes that it will be electricity neutral (between incoming and outgoing) over the course of a year. We'll see.
I'm on track to make about 3MWh/year with my 2.53kW solar array, which cost about $17,000 before any incentives. Assuming it lasts 25 years, that's 75MWh production, or about $225/MWh, with simple math. So I guess the top chart is about right in my case. <blockquote>The American Solar Energy Society suggest that an average household in the United States could expect to spend $35,000 to $52,000 for a 7.8 peak kilowatt system. A system of this size would supply approximately half of the residence’s annual electrical needs.</blockquote> That average household needs to get their sh*t together if n 8kW system only supplies half their use. Or maybe ASES needs to get their sh*t together for the stats they presnet. An 8kW system might provide at least 9MWh/year (10MWh in sunny Minnesota!); that's about 800kWh/month avg. If that covers half, that average family is using 1.6MWh/month... wow. Just wow. My 2.5kW system is providing 70% of the use for my 4 person household. And we run an electric dryer in the winter! I'm just sayin' ;)
Ooops, the link to the Bangladeshi solar homes article didn't show up. It's:
Just read an article that Bangladesh has just powered 1,000,000 homes with solar. Here's the link: <a / rel="nofollow"> It plans 2,500,000 more solar homes by 2014. Bangladeshis must use less electricity in their homes than we do. Is that what accounts for their being able to move so quickly on solar -- each installation can be smaller? Or is there something in the U.S. that makes it inherently more complicated and expensive?

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