Expensive New Solar Project Announced in California

Published October 1, 2007

The northern California power company Pacific Gas and Electric (PG&E) announced on July 25 it will purchase 550 megawatts (MW) of solar power at subsidized prices. The project is expected to receive the federal production tax credit of 1.9 cents per kilowatt-hour (kWh), yet will still cost more than traditional power production.

Mohave Desert Footprint

The PG&E project, produced by sprawling arrays of mirrors in the Mojave Desert, would be one of the largest solar thermal-electric plants in the world. The Northern California utility will buy the power from Israel-based Solel Solar Systems, which plans to install 1.2 million mirrors on nine square miles in the desert in southeast California. The $2 billion project should be completed by 2011.

The technology used in the solar project is different from the solar cells often placed on the roofs of homes. In large solar thermal-electric plants, sunlight is captured, concentrated, and used as heat for power generation. The process is termed “concentrating solar power” (CSP).

CSP has long been a forgotten stepchild to solar program support and subsidies, as most public funding goes to photovoltaics. In the mid-1980s, Luz International built several projects in California using a technology similar to Solel Systems’ mirror technology, but little has been done with the technology since.

Photovoltaics appeared to offer more promise than mirror technology. Solel and PG&E, however, are now putting their money into mirror technology.

Costs Remain High

Analysts note production costs for solar remain high and that solar cannot come close to being economically competitive without substantial taxpayer subsidies.

According to an October 2006 analysis by Tufts University economist Gilbert Metcalf, the cost of building a new conventional coal-fired power plant works out to about 3 1/2 cents per kWh. A solar thermal power plant, by contrast, costs about 12 cents per kWh, and a solar photovoltaic power plant costs 23 cents per kWh.

Electricity generated by the Solel system’s power will cost PG&E about 10 cents per kWh–after cashing in on the federal subsidies of 1.9 cents per kWh. The solar project will be able to produce electricity only when receiving direct sunlight.

Subsidies Required

To compete economically with traditional power sources, solar power will require substantial new subsidies or revolutionary technological breakthroughs, experts say.

“The levelized cost of building a new conventional coal-fired power plant–that is, the cost associated with building the plant and buying coal over the lifetime of the plant divided by the energy output that one might expect from the facility over its lifetime–works out to 3.53 cents per kilowatt hour,” said Jerry Taylor, a senior fellow at the Cato Institute.

“By means of comparison, a solar thermal power plant costs 12.25 cents per kwh and a solar photovoltaic power plant costs 22.99 cents per kwh,” Taylor noted.

“But that doesn’t tell the whole story,” Taylor added. “First of all, those cost estimates represent costs under current law, which distort prices via a panoply of subsidies and regulatory interventions. Second, those calculations disregard the costs associated with providing back-up power for when the sun isn’t shining. Third, the calculations ignore the costs associated with building sufficient transmission capacity to ensure that the power harnessed by solar power-producing facilities can get to load centers.”

Governor Insistent

In California, the state government is pushing to help solar power spread. Gov. Arnold Schwarzenegger (R) wants the state to produce by 2017 almost 10 times as much energy from the sun as it does now.

The state government has poured $3.3 billion into rebates for businesses and homeowners who install solar photovoltaic arrays, with promises of even more funding in the future.

Thomas Tanton ([email protected]) is vice president of the Institute for Energy Research.

For more information …

Gilbert Metcalf, “Federal Tax Policy Towards Energy,” Working Paper 12568, National Bureau of Economic Research, October 2006: http://www.nber.org/papers/w12568