Rethink Energy 228: the latest renewable energy capex costs

Speaker A: Hello and welcome to the Rethink Energy podcast. I'm Ezevi your host, Andries Vantanaar, and I'm doing another shorter one by myself this week. There's really three topics that I'm going to talk about in this podcast and I'll leave the best one to last. So the last one is going to be capex costs across lots of different energy types. Renewable, uh, energy from China. There's some research that's uh, really in depth coming out from the China Hydropower Research Institute and they very helpfully published that in the media in the form of screenshots in Chinese. So I had a wonderful time rankling that through the machine translation. The other two topics that I'll go into first are um, the Trump administration's energy policy and curtailment this week, taking California as the example. So, uh, I'll jump into the Trump administration's energy policy first and I think I won't bore you with stating the obvious about how the tariffs are getting in the way of battery imports and, and to some extent, uh, solar and wind. I wouldn't be surprised, although those have a lot more domestic production that actually exists, unlike batteries. But yeah, and I won't go into how the IRA is being cut in various ways. So it's less appealing now to make the stuff inside the U.S. even though the tariffs are actually stronger against foreign competition on the equipment side. And it's less appealing to make renewable energy power projects. And they're trying to change the power market in places like Texas, although I think the latest attempts to do that have been rejected. But they can always try again. Um, but I won't bore you by saying that because that's kind of not surprising at all. I think our old boss Peter White predicted Trump's win already about two years ago. So it's been on the cards that he would come back and inflict another four year delay on the energy transition in the U.S. so what I would like to talk about though is nuclear power, which is uh, in a very interesting spot because it doesn't exist, uh, really as a new thing in the West. Like if you look at Western new build nuclear, all you have to look to are about six projects in the last decade, all of which had horrible cost overruns. I'm thinking Olkiluoto in Finland, Flamenville in France, Vogel 3 and 4 in the US and some other projects nine years ago in the US whose name I forget, and Hinkley Point C, all with like twofold or threefold cost overruns. 10 taking more than a decade to build. I might be exaggerating when I say they're all taking that long, but nuclear is in a very bad spot in that sense. And yet the interest just keeps growing. Uh, the political support is bipartisan. So the US currently has 100 gigawatts of nuclear capacity. Most of which is, um. Well, all of which is basically, wouldn't it be 60 to 40 years old, uh, because new constructions basically stopped after Three Mile island and Chernobyl, uh, for three decades. So the Biden administration put in this new target that by 2050, they would like that 100 gigawatts to go up to 200 gigawatts. Now, that's pretty big. And actually, considering it takes 10 years to build one, um, unless you really sort things out, and maybe another 10 years to plan and approve one, and it's only 25 years left until 2050, that means quite a lot of effort is supposed to be starting right now. And actually, the Trump administration has just, um, raised the target from 200 gigawatts to 400 gigawatts. So now they want to build an extra 300 gigawatts on top of the existing facilities. And that includes 10 nuclear power plants that should enter construction by 2030, uh, while also, incidentally, uh, reshoring the supply chain of domestic nuclear fuel. Nuclear fuel, um, just because they don't want to buy it off Russia. Uh, there's like four. I forget exactly the details, but there's some kind of purification process that there's only four facilities that do it in the entire world, and probably most of it's in Russia. And beyond just the government targets and the bipartisan support. You also have the fact that there's a lot of money and a lot of future power demand stacking, uh, up behind nuclear, specifically just from the data center hyperscalers, the big tech companies. So, uh, data center growth was already the biggest source of new power demand on Western grids to begin with, even before AI, and now AI has boosted that up even more. And these companies also have a lot of money to throw around, and they also want a lot of reliability for their operations, and they would quite like it to be clean as well, although they're looking into really a mixture of renewables plus battery, plus gas, plus plus nuclear. You know, you really don't want Internet services to be sort of intermittent. And the power fluctuations from an AI data center can be, uh, quite significant, I guess I should think. Uh, there's a lot of cooling demand, and so the Big news here is that everything's in line. You've got both sides of the political aisle actually working towards enabling nuclear power in terms of project development and permissions and approvals. Uh, probably also government support in the form of finance, at least you hope so. And even if they don't, they've got this big corporate spend approaching, uh, more to the point. And it wouldn't surprise me if even in a huge economy like the US I wouldn't be surprised if in 2040 or 20, well let's say 2050 because it takes so bloody long to build these things, maybe 10% of US power demand will come specifically from nuclear plants that were built to power datasets. And uh, just to, just to hammer the point home, last month the Tennessee Valley Authority became the first US utility to apply for an SMR construction permit. And that one is supposed to be 300 megawatts with construction slated to last from 2028 to 2032. And one more point in favor of nuclear because of course in many cases it's kind of dubious because it's like, well, will we or won't we build it in 10 years? And then you compare that to renewables that just. Yeah, we actually will build that and we're doing it right now and it has a six month lead time and it's not this huge risk, uh, because there aren't these unpredictable cost overruns. But what we have in the policy in the U.S. is that the, the uh, Democrats basically want to sabotage and destroy the uh, fossil fuel fleet and the Republicans are doing the same thing to renewables. So almost by process of elimination you're left with nuclear. Uh, so that's going to be quite big actually. But I better get on to the next topic, the next little topic, which is Californian curtailment. So it's just um, trying to understand just how big and important curtailment is, how it kind of defines the renewable energy industry as a whole in a certain sense. And this week I'm taking California as the example because there's, there's some uh, dramatic new statistics coming out. The statistic is 919 gigawatt hours of solar and wind power curtailed in the month of April alone in California, according to the California Independent System Operator, also known as Queso. And that's ah, 0.1%, no, it's 0.01% of China's uh, annual total electricity consumption. I guess that's a bad comparison, uh, since, you know, 0.01% doesn't sound very like very much. Well, it's 1 10,000, but that's China, which has 1.4 billion citizens, not 40. That's full year instead of one month. And it's all energy instead of, um, just wind and solar and specifically curtailed winds and solar. I guess the more, uh, important figure is that on an annual basis, California is now curtailing 4% of its wind and solar power, which, uh, is about the same as the Chinese rate as well, come to think of it. And it's quite a bit lower than in Australia and Chile, which are at 10% and 23% respectively. So curtailment applies to both wind and solar almost equally. But I would say it's actually, well, it is higher for solar and it's also driven by solar because wind is much more consistent in its generation pattern. Solar always has a problem past a certain point of adoption in the middle of the day, every day, at least during summer anyway. And that's exactly what you can see, uh, in this article if you look at the graphs, if you're a subscriber. So the Californian curtailment rate is now 4%. It will probably grow to the Australian 10% in future, and maybe after a few decades it will be up at 20%. Like in Chile. Um, Chile's issue is that it's a very thin linear grid and it's got a desert in one end that's really good for solar power. And, uh, the demand is about 1000 kilometers to the south or something anyway, actually more than 10001500 kilometers. But anyway, back to California. Uh, we also have a graph here of, uh, wind and solar curtailment totals by month. Now, the reason we have an almost 1 terawatt hour of curtailed, uh, renewables in the month of April is because it always spikes in the months of, um, April and March and May every year. And I guess that's because the natural conditions for wind and solar generation, especially solar, are good. But on the other hand, the demand isn't really there yet. Whereas if, um, it's really in August, the, the demand from air conditioning catches up to the natural conditions. And so actually the rest of the year it's not so high. It actually goes down to almost nothing in six months from now. But another interesting thing is, of course, what's the solution to curtailment that we always say? Well, there's always negative power prices. So from a financial and strategic point of view, the solution is always batteries. Uh, the interesting thing is that the curtailment is growing every year, uh, even though there's now almost 10 gigawatts. Yeah, 10 gigawatts of batteries. Uh, and that's not. I don't know what the capacity. The capacity figure is probably higher than that. Uh, but when I say 10 gigawatts, that's how much California is actually discharging in the early evening hours once the sun goes down every evening like this past week. This is kind of a reminder that batteries get built because of curtailment. And so they will never get rid of curtailment. They'll only ameliorate it. And that means that even with batteries available to take the edge off actually the business case and the curtailment situation will continue, uh, to become more dramatic over time. But that's enough about the California piece. Now we get into the real meat and potatoes of this week, which is the China Hydropower Research Institute has published a new report into the costs of renewable energy, and they call it the China Renewable Energy Project Cost management report for 2024. They do this every year, and it's quite the gold mine. Now, if you really want to go through the costs of, uh, I mean, there's about 30 different, well, probably 20 different parameters that I list here. There's five different categories of wind power, for example, so I just can't be bothered to list them all out on the podcast. It's not the right format for it. You'll, you'll have to read it if you're a subscriber, and if you're not a subscriber, you'll have to, um, ask for a trial subscription from RozethinkResearch Biz, because I'm not going to list out every single number here, but there, uh, are some very interesting details. So, you know, wind cost is going down. Uh, solar power cost is going down. What is it? $480 per kilowatt of utility scale. Solar, half the price compared to the West. Um, we kind of knew that, um, the price is down 11%, 11.5% in 2024 compared to 2023. Uh, what's wind power fallen by? And, uh, yeah, and, uh, every, every energy type has, um, forecasted cost declines. I think the first interesting thing is that there are some energy types in China that just don't exist in the West. For example, uh, magnetic levitation, flywheel energy storage. It does exist in the west, but not at the scale of 15 megawatts or 30 megawatts or 50 megawatts or 90 megawatts. And those are, uh, individual projects that I've reported on. As uh, existing in China, uh, this year. That's the sequential records that have been set this year. It's quite interesting that they're doing that. Of course you can plug that into a synchronous condenser, uh, to use it to maintain grid frequency. As more and more intermittent renewables get plugged into the grid behind grid following inverters that don't maintain the grid frequency by themselves. So that would be of interest to the Spanish. Probably the Chinese should build these in Spain instead of in China. But um, the other thing that exists in China, doesn't exist in the west is um, what is it the main thing? Well one of them is concentrated solar power, but that's kind of an old topic. It's pretty niche. It's not really cost competitive outside of these deserts with very little cloud cover and it's still just barely worth it there. So when the Chinese build a wind, solar and energy storage complex, most of the energy storage uh, is batteries. And, and they still put in some concentrated solar power. And yeah, the storage actually can be good. If you scale up the molten salt tanks to provide like 10 hours of energy storage, then it's cost effective, um, assuming it's sunny enough to make the whole thing with focusing sunlight from mirrors actually make any sense at all. And in future you could plug in that heat to various uh, industries. But the really interesting thing here among everything else is actually compressed air energy storage. Now I think there's some efforts being made in that regard in the UK and um, Germany, but I honestly can't remember because they're pretty small. I think I did the usual thing a while back. I wrote about some startup. I may be thinking of a different technology, but I did the classic thing where you write about some Western startup and then as you seek to provide a bit more context you decide, oh, let's see what the Chinese are doing. And they're doing the same thing, except it doesn't have some wonderful special innovation that the Westerners have, but it's 1000 times the times the size. So in other words it actually exists as a meaningful project instead of being some million dollar startup, uh, sort of trial run. So, and I think compressed air is one of those. I think I wrote about a 500 kilowatt pilot project and then, and then I said, oh, by the way, the Chinese just commissioned one with 500 megawatts, something like that. But anyway, let's get to the point here. Um, so compressed air amazingly is actually cost competitive with batteries in China and batteries in China are Very, very cheap. It costs about $200 per megawatt hour for the Capex. For the um, capacity of battery energy storage using lithium in China, that's probably a slight overestimation. Actually. $200 per megawatt hour. Sorry, uh, kilowatt hour. Yeah, $200 per kilowatt hour of installed energy storage depth. But uh, compressed air is actually uh, let me double check this. It's on average it's about the same as that. If we assume a five hour storage duration it's $1,000 per kilowatt, which means $200 per kilowatt hour. And this is the important point here, which is that within that $990 per kilowatt average you actually have two categories. One is the type using caves and that comes in at $787 per kilowatt hour. Sorry, per kilowatt, which means about $158 per kilowatt hour because on average these are five hour duration. Now that is at least 10%, maybe even 20% cheaper than battery energy storage. And I guess we're only looking at Capex, uh, obviously something that involves pumps and high pressure valves that will have a much higher uh, maintenance, uh, cost. I, well possibly I don't actually know that. Uh, I think it is higher but maybe not that much. I guess I need to look into that at some point. Having um, said that the main cost is still the Kapex. So I'm not being unreasonable here to uh, discuss this based purely on Capex. But anyway that's very interesting that there is this new energy. Well it's not really that new but uh, there's this energy storage type that is 10 to 20% cheaper than batteries even after all the cost decline that batteries have enjoyed. Uh, but it is dependent on the geography. You do need to find some salt caverns to use I guess. It's interesting that Germany has salt. Heavens it does. Uh, and certainly China has in many places. Now the other category is uh, artificial excavation. And with that the cost comes to $1,060 per kilowatt which is actually less than 10% more expensive on Capex than batteries. So even that, I mean if it's more expensive than batteries there's no reason to build it, but it's pretty close. So if there's ever some kind of lithium price spike or maybe there's a tariff induced supply chain, uh, issue, but there probably would be with uh, compressed air as well. Um, yeah, it's an interesting alternative. I would say it's only really a Strong alternative if you have the caves. Anyway, that was the most interesting uh, thing in here. But there's a lot of other details like, uh, where else are you going to read about the latest up to date, uh, Capex for magnetic levitation, flywheel, uh, energy storage. Although to be honest, actually the China Hydropower Research Institute reports that the price ranges from $700 per kilowatt to 1500 uh, dollars per kilowatt. And of course the duration is very short, um, so it's very, very high per kilowatt hour. And they predict a cost decline of between 20% to 40% over the next five years. Which goes to show that that's a very new industry because all the other stuff, uh, is predicted to have a price decline of more like 10 to 20%, not 20 to 40%. Now they talk about hydropower, they talk about wind power, they talk about solar power, uh, they talk really about everything. They even have a bit on electrolyzers. Not as much as I would like. They say that a 5 megawatt uh, electrolyzer now costs $836,000 per unit. Uh, that's for, I mean that's kind of mainstream. They didn't even specify. So I assume that's ALK electrolyzers. And then they say that PEM electrolysers cost the same amount but for a 1 megawatt unit. So PEM is uh, $836,000 per megawatt and ALK is only what, $165 per kilowatt. And those prices are down by 20% and 32% respectively from 2023. So that does look like there's uh, there will be an inflection point and hydrogen uh, can become financially viable in another five years or something in China. So are there any more tidbits I would like to share with you? Well, the Chinese are building a. No, they've actually built it. They've built a 400 megawatt solar farm on stilts in water depths of between 8 and a half to 11 meters at AH, distances offshore from ranging from 2 kilometers to 6.2 kilometers in Lizao Bay. That's probably Shandong Province. And very good capacity factor of 19.8% expected probably because all the water cools the solar panels down. And we've got a nice picture there of the um, sort of platforms that they're building this on. So a tidal flat is kind uh, of free real estate. Nothing else is built there. So this is quite interesting if you have the right to aim for it, which China does. Another thing that's happened is. Oh yes, the first sodium ion power batteries ever have been exported from China and this was produced by Catl. Now sodium ion has half the energy density of the best. If you look at Catl's sodium ion Nextra battery, the energy density is 175 watt hours per kilogram, which is half that of the very best cutting edge lithium ion available today. But uh, yeah, it's cheaper, it's safer, it performs better at low temperatures and it charges swiftly. So it can be what you're looking for if you don't need the huge, uh, range. And that actually is the, the last thing I'd like to mention. So have a nice week. Do check us out at rethinkresearch Biz. We're in the energy section. You can ask Ros at RethinkResearch for a free subscription to a trial subscription that is, uh, just for a couple of weeks to check us out. And anyway, with that, I bid you farewell until next week. Sam.