Logic holds – it is better to have an approximate answer to the right question rather than a precise answer to the wrong question. Combined with the better-known rule – you can’t manage what you don’t measure – and the complex challenges and opportunities facing our power and finance industries today are better revealed.
At the crossroads of energy policy and project finance decision-making is the ever-present analysis framework, LCOE – the levelized cost of energy. Hidden within this robust and evolving mathematical solution is a trove of unexplored potential uniquely favoring solar power and distributed generation over conventional power and centralized generation. Data outputs from LCOE are trending toward provable economic and societal biases in support of distributed solar, and reveal an observable frequency of more preferred and precise answers to defensibly more useful questions. As these claims are shown by levelized analysis to be mathematical fact and deployable at scale, the LCOE tool can help us pursue our solar energy future more confidently at a quickening pace.
Levelizing the Field – as turning a new phrase and proposing a thesis goes – would challenge our national leaders and applied practitioners to carefully re-evaluate the framework for defining both input and output measurements available in the analytical framework commonly known as LCOE. More plainly said, we need to do the math, and do so logically. When we do, we run headlong into some very compelling conclusions about solar energy versus conventional alternatives:
1) Solar LCOE produces the most precise answers to ever more reliable questions supported by increasingly more accurate measurements. In other words, solar levelized analysis is more reliable and bankable (certain) than any other power generation source analysis over its useful life and investment cycle – and across multiple inputs.
2) As and when solar energy policies align with more reliable questions supported by economic proofs, legacy energy policies are necessarily transformed by levelized analysis. In other words, when solar energy investments are recognized to improve public and private balance sheets like no other generation source can, policymakers will adjust accordingly and incumbent policies will be forever changed in advancing support for solar.
3) L(x)OE methods will begin to overtake the existing LCOE-centric framework, as solving to their variable answers begin to predominate in the most sophisticated power finance models. In other words, using LCOE to solve to cost alone will prove to be an inferior business intelligence tool compared to models that solve to multiple, levelized variables – answering more questions and enabling better decision-making across a broader range of factors.
Levelizing the Field implicitly holds that we are not asking the right questions, but that when we begin to ask them more clearly, better approximate and precise answers will follow:
1) Is the useful life for a solar plant facility much longer than LCOE analysis currently assumes?
2) How do you price risk if one source provides an almost fixed lifetime LCOE while another guarantees only a volatile and unknowable LCOE?
3) If solar achieves something close to $1/watt installed within 10 years, and provides “free fuel” at a radically lower LCOE, will we continue to support conventional power, and does this eventually render even in-service power obsolete?
4) Will consumers ever be able to negotiate a 5+ year discounted, fixed rate schedule with their utility, and pay virtually nothing for electricity thereafter?
5) Does forward-looking LCOE defy conventional wisdom? Will we spend more for less energy per capita, or will we spend far less to use much more, and cleanly?
6) What does L(x)OE tell us about on-site solar combining economically with on-site storage?
7) Will evolving net-metering policies and a smart transmission grid further unlock LCOE advantages?
8) As technologies continuously increase solar output, do energy and utility business models fundamentally change?
Striking a match releases 10³ joules of energy. The average adult female – running for one hour – requires 1,000 times more energy than a burning match generates.
The electricity used by a 100 watt light bulb left on for one day is equivalent to 10 times again more energy. This is the same amount of caloric power exerted in one 24 hour day of heavy manual labor by a human being.
One gallon of gasoline stores 10 times more energy than this – and equals the power of 100 people running for one hour. Heating a house for one year consumes 10,000 times more energy still, or about as much as 1 billion matches.
Everything we do – every system of transaction and interaction – revolves around energy. Compared to almost the whole of recorded human history, we Americans live like kings and queens today because of the energy solutions and resources modern civilization has unlocked.
Most of us don’t lift a finger, directly, to cool and heat our homes, our food and our water, power our cars, or run our computers and televisions. Sure, we apportion tiny to modest percents of our average incomes to our average energy consumptions. But, the advances of the Carbon, Industrial and American Ages to our standard of living are simply incredible. Kind of unimaginable if you do the math.
Let’s do more math.
If we look at the average American household utility bill, we see energy consumption of just under 1,000 kilowatt hours (kWh) per month.
Looking at the average middle-class household utility bill (or, one in particular) reveals 2,460 kWh used during the month of August in 2008. That’s about 1,000 manual labor days on a 24/7 work schedule, or 4,200 on a 40 hour work week.
We inspected the premises of this sample household. There is not a staff of 150 laborers on the property keeping the lights and computers running. Nevertheless, this household uses the labor value equivalent of 150 persons to keep its electricity flowing. At the prevailing average energy prices for most homes – around 10¢ per kWh – the typical American household only pays about 8¢ per laborer per full-time day (where 800 watts approximates a labor day). Not enough to live on, but kilowatt-hourly staffers do pretty well without food and clothing.
The prevailing federal minimum wage in 2009, for human labor, is $7.25/hour.
Having done this simple but rarely explored math, it seems plain that the American energy infrastructure – it’s systems of production, distribution and pricing – effectively pays this household well over $150,000/month in labor-dollar energy equivalents on an electricity bill of just over $240. Said another way, a $2,880 electric bill gets you $1.8 million of pre-industrial, standard-of-living lifestyle (in today’s dollars, of course). If adjusted to per-capita incomes in the US in 2009, that number is $4.6 million. If you use the 2007 national average, 936 kWh (source: EIA), that’s about $800,000 at minimum wage and over $2 million at per capita wage per year, with a median of nearly three million dollars.
Simply put, we’re all fossil-fuel multi-millionaires.
We are the beneficiaries of living standards which would cost almost every American household over one-million dollars a year today if we relied upon the energy technologies in use during the time of the American Revolution. Put another way, our energy riches and comforts amount to about 20 times our average annual incomes. For some of us, the benefits are much higher still.
Remarkably, we have the means today to advance these standards 10 times over within a generation. More remarkably, it’s not the headline news day-in and day-out, or pretty much, ever. Not in context to its importance, or proportion to its material worth.
We don’t talk about how our energy riches rely upon energy stores of fixed and declining supply, or how that supply which is fixed and declining has to serve more than 3 consuming people today for every 1 it serviced as recently as the 1970s. We don’t like to talk about the 1 billion people adding to our population over the next decade or so, and their access to and shopping at the fixed inventory store.
Understanding what all of this means is vital to any clean energy and technology revolution in the United States and around the world. Understanding this, truly “getting it,” lies at the very heart of our future opportunities, our standards-of-living, our health and wellness, our security, our climate, our competitiveness in a global marketplace. Our national balance sheet. Misunderstanding it would be the greatest tragedy in history, because the meaning of this math lies at the heart of unlocking an economic growth cycle akin to – and eclipsing – the Industrial Revolution. Misunderstanding it threatens decline, hopelessness, war, poverty, environmental ruin, and the devolution of modern society. Whichever way we go, pretty big stakes.
Our dialogue about environment, energy and economy is simply out of order. Addressing climate concerns through the policy lens and language of fear, diminishment, consequence, penalty, and sacrifice misses the whole point of the opportunities we now confront. The energy-economy-environment nexus focuses too much on the finite and too little on the infinite. Too much on fossilized gasses and liquids and too little on materials and decision science. Too much win pitted against loss. Too little understanding of non-zero potentialities.
When our public and private leaders – and consumers – figure out that you can already finance renewable generation at lower costs-of-capital than fossil-fuel alternatives, and pay for it with your current energy expenditures, and those investments are better paybacks than the stock market and bank savings rates-of-return, our clean energy revolution begins.
When we actually realize that distributed generation unlocks our income-to-debt and equity-to-debt problems, our clean energy revolution begins.
When we truly discover what we already know – that talking singularly about emissions and conserving finite energy resources is the blind person’s path and fool’s errand, but talking about unleashing infinite energy resources inspires hope and ambition for a better tomorrow – our clean energy revolution begins.
When we understand that energy efficiency and conservation are courses that gain us 10-15 years at most with the kind of growth our debt burdens and economic system requires, but that renewable generation provides us growth that overtakes our imaginations and we have not seen in generations, our clean energy revolution begins.
Clean, cheap, abundant and reliable energy is the answer, not a question. Fixing our energy system energizes our economy. Unlocking our economic system by fixing energy brings us our every objective in climate change mitigation – more quickly and more surely.
EarthShot’s primary mission is to strike the right matches in the right order – to disseminate accurate information, professional competence and broad awareness about America’s clean energy revolution, which by the way, has already begun.
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The Launch Pad serves as a forum for the EarthShot Foundation team to express our views in real-time on the global transition to a clean energy economy.