Are solar and wind cheaper than coal? Yes and no...

You'll hear fairly often, that solar and wind powered electricity are now cheaper than electricity powered by coal. Is this really true? Yes, but only if you compare them using what's know as the Levelised Cost Of Electricity (LCOE). I'll argue here that the LCOE is not an appropriate way to compare these things, since, as we've seen, they don't do the same job. Comparing their costs is like comparing the cost of a bicycle with that of a car and saying the bicycle is cheaper.

First of all, what is the Levelised Cost Of Electricity? When you build a power plant, just like anything else, it has a finite lifetime. Over that lifetime, there are a range of costs to pay: first you have to pay for the land, planning and permitting, engineering and so on. Then you have to pay for construction and commissioning. When you operate the plant you have to pay for wages, insurance, fuel, shareholder dividends and taxes. Finally at the end of life you have to pay for decommissioning and disposal. Over the entire operating lifetime of the plant, you have converted a fixed quantity of energy from fuel, into electrical energy.

The LCOE is just the lifetime electrical energy produced, divided by the total lifetime cost. It's basically the average price that you need to be paid for the electricity produced, in order to just barely break even. It's the minimum viable average price you need to be paid for electricity, over the life of the project.

On this basis, solar and wind power are indeed cheaper than coal, according to this Wikipedia page. In 2020, (in the US) wind and solar LCOE was about US$40 per MWh, natural gas was about US$60 per MWh, and coal was about US$110 per MWh. These figures are for the US market and are not representative of the Australian market - notably, natural gas is much cheaper in the US than here, and coal is much cheaper here than in the US. This is mostly related to the quality and quantity of the resources in the two countries. It is true though, that solar and wind can produce electricity cheaper, over their lifetimes, than coal can.

The problem with this is that you don't directly use the output from a generator when you switch on an electrical device. You draw electricity from a system. My previous post explains how this works in some detail. Solar, wind and coal (and gas) all work together, with the retailers (and futures markets) to deliver reliable electricity no matter when you demand it, day or night. Each of the generation technologies fills a different kind of need in the grid. Solar and wind are low carbon, and cheap providers when the natural flows they depend on are available. Coal is more expensive than renewables, but can run through the night and when the wind doesn't blow, although isn't very responsive or flexible. Gas is the fast and flexible, but expensive (and getting more expensive).

The LCOE calculation as a way of comparing electricity generation technologies is correct, but not appropriate - because they each do different things. It's not as simple as "they all generate electricity". Because solar and wind can only generate when the resource is available, the other parts of the system have to deal with the additional supply and demand balancing load that causes. Effectively, the costs of dealing with intermittent generation are externalised onto the other grid paticipants, and not reflected at all in the LCOE. 

For intermittent generators to be comparable to coal fired electricity in an equivalent basis, the LCOE would need to be for a system that includes this cost of dealing with the intermittency. For example, the intermittent generator plus enough batteries to smooth out generation over a 24 hour period. The batteries add a whole lot of extra cost over the project life, but nothing in terms of electrical output. 

Let's see approximately what this does to the LCOE. 

The figure cited above for solar energy is about US$40 /MWh in 2020. The cost of lithium battery storage systems for the grid in 2019 was US$469 /kWh [1.]. We need a bit of calculation to fit these two things together. Assuming that we have 6 hours of full power output from a solar plant each day, and none for the remaining 18 hours, a 1 MW solar plant would produce 1 MW when the sun is shining, for a total of 6 MWh of electricity per day. To smooth this you would need 4.5 MWh of batteries, and the system would deliver 0.25 MW, 24 hours per day. Supposing the operating life is 20 years, that would amount to 43,800 MWh of electricity. The stand alone solar plant must have a lifetime cost of $40 /MWh x 43,800 MWh = $1,752,000. The cost of the batteries would be 4.5 MWh x $469 /kWh x 1000 kWh/MWh = $2,110,500 - about the same as the solar plant again.

So, with very ideal assumptions of perfect sun for 6 hours a day every day, we need to at least double the LCOE for solar power to account for the cost of dealing with the intermittency of its generation. If we suppose that it would be appropriate to have a bit more storage to account for weather variability, it would be quite a bit higher. Batteries last about 10 years, not 20 so we would need to at least double that battery cost. So conceivably, to deal with the cost of intermittency, currently born by the rest of the grid, we would need to multiply the levelised cost of solar power by at least 4 or so.

As part of the whole system that supplies electricity to your home, no, solar (and wind) is not really cheaper than coal - at least not in a direct monetary way, and not in the way the costs are normally presented. The reason why it looks cheaper is that the costing doesn't account for unrecognised costs that are passed on to other parts of the grid. Another way of thinking about this, is that the electricity produced by solar and wind, although cheaper, isn't as economically useful as that which can be produced "on demand".

References cited

1. Mongird, K., Viswanathan, V., Balducci, P., Alam, J., Fotedar, V., and Hadjerioua, B., Energy Storage Technology and Cost Characterization Report, PNNL28866, US Department of Energy, July 2019