Why Utilities Don’t Buy Solar Energy (and why they do)

cost-effectiveUtilities don’t buy solar energy to provide energy to their customers. It’s too expensive and too unreliable. They don’t even buy wind for their customers, even though in most cases it is very close to being cost-effective. Neither of these intermittent sources suits their needs, either in price or dependability.

But they do buy solar and wind. They are trying to reduce their carbon dioxide emissions, and to a lesser degree, diversify their sources of electricity in case of fuel price shocks.

They are required by state and Federal regulations to buy wind and solar.

It’s really a simple equation. If –

Federal and state requirements – Added cost of electricity – Intermittency and transmission penalty > 0,
then they buy solar and wind.

Ok, for wind the added cost of electricity is small, even nonexistent, and can go positive with the Federal tax credit. But then there is the intermittency penalty and odd-ball things like wind forecasting and added spinning reserves. Utility executives wouldn’t buy added complexity if they didn’t have to.

Societal preferences for lower carbon dioxide, and insurance against energy price fluctuations is why we deploy solar and wind.

The competition for solar is the other non-CO2 sources of energy, not coal, and certainly not natural gas (which helps by being flexible, filling in when solar or wind aren’t available). It is also energy efficiency, and the metric is the cost of reducing a MT of CO2. Dollars per MT CO2 (evaluated over the operating life of the project), that is what counts. (Of course, other things count, too, like water use and time of day pricing. They are all in the mix.)

Yes, the price of solar will keep coming down. Of course that helps – simply look again at the equation! The less that added cost, the more solar will be bought. But it is not because it will be cheaper than conventional sources (even though, someday it may be), but because it is cheap enough based on societal needs.

Ken Zweibel