Fossil Fuel Power Plants

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Publication November 12, 2015

Fossil fuel power plants are running at lower capacities, making them more expensive to operate, according to a report by Bloomberg New Energy Finance in October.

The report said there is evidence of a “virtuous cycle.” As more renewable energy facilities are built, utilities cut back on the number of hours that power plants that burn fossil fuels operate. This pushes up the cost per unit of electricity, and helps accelerate reaching the crossover point when renewable energy is cheaper than electricity from coal or natural gas to generate.

Germany and the United Kingdom have reached the crossover point where wind is now the cheapest electricity, even without government subsidies. Bloomberg says wind is cheaper than fossil fuels in the US if government subsidies are taken into account. However, it expects another decade before the crossover point is reached without subsidies.

One consequence of the virtuous circle is returns from gas-fired power plants become harder to predict if one assumes the plants will be dispatched less and less frequently over time.

Ben Fowke, CEO of US utility Xcel, said his utility is receiving bids currently of $25 a megawatt hour for wind under 20-year power purchase agreements. He expects prices for electricity from gas-fired power plants to be closer to $32 a megawatt hour over the same period.

Meanwhile, the National Renewable Energy Laboratory reported in September that the median cost of utility-scale solar photovoltaic projects in the United States fell by more than 50% in real terms during the five to seven years through 2014. The cost figures in current dollars, meaning the dollars for the year in which spending occurred, are $6.30 a watt AC at the start of the period falling to $2.30 a watt by 2014.

NREL said that at least 44,600 megawatts of utility-scale projects were in US interconnection queues at the end of 2014. Not all the projects will be built, especially if the investment credit falls from 30% to 10% as scheduled after 2016.


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