The solar power industry tricks us into wasting money on overpriced electric power. They hide the massive subsidies and pretend that solar power is good for the Earth. They get rich at our expense. The Poster Explained
Solar Power is Erratic - The Consequences Solar power does not, of course, work at night. It does not work if it is cloudy. Solar power gives its greatest output in the middle of the day. Solar power falls off in the late afternoon. In Las Vegas and to a lesser extent in Reno, the greatest load on the electrical grid is in the late afternoon and early evening in July due to the air conditioning load. Because you can't count on solar, there have to be other plants ready to take over if it is cloudy. In Nevada these plants are mostly natural gas plants.
You can't replace the natural gas plants with solar plants. You have to keep the gas plants in case it is cloudy and to provide electricity at night. Then, what are the solar plants good for? When the solar plants are generating electricity the natural gas plants can reduce output and thus save fuel. The economic benefit of solar power is to save some fuel in the natural gas plants. Most of the natural gas plants in Nevada consume about $25 worth of fuel to generate one megawatt hour of electricity. To the extent that the solar power costs more than $25 per megawatt hour, that is a subsidy that is paid for by electricity consumers and taxpayers. A rational utility would not pay more than $25 per megawatt hour for solar power because if the solar costs more than $25 it is cheaper to fire up a natural gas plants. Those plants already exist. (Some caveats will be covered later.) The precent of subsidy for solar can be computed by comparing the value of solar ($25 per megawatt hour) with the unsubsidized cost of solar.
There are three sources to pay the subsidy for solar power. The contract price is the amount that NV Energy has contracted to pay for the solar electricity. In most cases there is a 25-year power purchase agreement with a flat price per megawatt hour of power generated. Some power purchase agreements are a bit different, but they are all close to being a 25-year contract. Any amount that NV Energy pays more than $25 per megawatt hour is a subsidy – money paid beyond what the power is actually worth.
The cost of solar power is almost entirely determined by the initial cost of the plant. Solar power does not need fuel and the maintenance cost is low. The contract price is sufficient to pay off the cost of the plant over the 25-year contract and give the developer a reasonable rate of return. The key is what rate of return does the developer have to have. The state of Nevada has decreed that a certain portion of its electricity must come from renewable sources, mainly solar. Currently this portion is 20% and is scheduled to increase to 50% by 2030. That creates a seller's market. NV Energy has to give terms and rates of return sufficient to incentivize solar power suppliers to build new solar farms. The terms and conditions, in practice, are 25-year, iron-clad contracts. The developer does not even start to build a solar farm until the contracts are signed. The contract, financially, is a lot like a bond. In order to finance the project and perhaps later sell the project, the developer needs a rate of return we estimate at 6%. If the developer did not have that iron-clad contract with NV Energy, we estimate that a rate of return of 9% would be necessary. For a fully amortized loan with a term of 25 years the payment is 30% greater for the 9% loan. Thus the interest rate subsidy is 30% of the contract price.
The federal government provides a subsidy for utility solar farms. The subsidy has two parts. The first part is a 30% tax credit for the construction cost. The second part is a tax subsidy called tax equity financing. Tax equity financing is enabled by certain tax loopholes deliberately created by the friends of solar energy in congress. Rapid deprecation of solar plants make it possible to bring in a temporary corporate partner with a large income tax bill. The end game is that money that the partner would have paid to the federal treasury as income tax is instead diverted to build the solar farm. We estimate these two subsidies together are worth 50% of the capital cost of the solar farm. In the imaginary world with the first two subsidies eliminated, the cost of electricity would be the contract price plus 30%. But if the 50% federal subsidy is eliminated, the cost of the solar farm to the developer is doubled and the cost of electricity would have to double to from the contract price plus 30%.
Notes and Caveats This analysis of cost and subsidies uses a model of the cost and subsidies. From the contract price the analysis works back to compute the subsidies. Since all projects do not exactly fit the model the results are an approximation. However we believe that it is a good approximation.
In equations the model can be expressed as follows:
capx - cost to build the solar farm capxsub= capx-.5*capx ; apply federal subsidy of 50% The unsubsidized price for the electricity is sufficient to amortize capxsub over 25 years at 9% Divide the price in the step above by 1.3 to accept a 6% rate of return ( The difference in the size of the payment for a fully amortized loan is 30%, 6% compared to 9%.)
If you start with the contract price: Multiply the price by 1.3 to get the price if the rate of return is 9% Double the price in the step above to remove the federal subsidy of 50% You now have the unsubsidized price
The percent subsidy is given by: (unsubsidized price - cost of fuel)/(unsubsidized price)
Note: There is no need to know the actual capx.
Nevada Solar 1 and Tonopah Crescent Dunes are thermal solar plants. These plants use mirrors to concentrate the sun's heat to generate steam and drive a turbine to generate electricity. Crescent Dunes additionally stores heat in a tank of molten salts. The heat can be extracted to generate electricity after the sun sets. Thermal solar plants are in general more expensive than the more common photovoltaic plants. Crescent Dunes received a federal loan guarantee for more than $700 million, another substantial subsidy. Crescent Dunes has been plagued with breakdowns lasting for months.
The Gemini project has not yet been built (August 2019), but the power purchase agreement has been signed. The Gemini project includes a large battery installation to store some midday power to be released later in the day when power demand peaks. Batteries are very expensive and only last about 5-years before replacement is necessary.
The contract prices shown in the chart are obtained either from the power purchase agreement or from FERC Form 1 submitted by NV Energy to the Federal Energy Regulatory Commission.
It is interesting to note that if the federal subsidies were eliminated, the contract price would increase by enough to replace them – because NV Energy is required by state law to purchase continually increasing quantities of renewable power. They have to pay enough to get the solar power.
The expensive projects in the graph are mostly older projects, when costs were higher, or thermal projects. New projects can probably be built for $80-$100 per megawatt hour unsubsidized. With subsidies the contract price can be less than $30 per megawatt hour.
The subsidies are sometimes justified as being the price we pay to reduce CO2 emissions. The problem with that argument, as analyzed elsewhere on this website, is that the cost per tonne of CO2 emissions reduced is exorbitant, far more than it would cost using other methods such as nuclear power or planting trees.
Solar is extremely expensive compared to the alternatives. Nevada can take the position that the federal subsidies are a gift that it is willing to accept without question even though Nevada residents pay for the subsidies via federal taxes. The federal subsidies are currently scheduled to phase down. In any case those subsidies have a tenuous future given that they are stupid subsidies. Even if the federal subsidies are accepted without reservation, the electricity is still uneconomic.
The short answer is that in Nevada solar is a foolish choice –a complete waste of money with no redeeming features.