Solar Power:
- Concentrating solar thermal power offers real potential to reduce dependence on coal and displace emissions from the power sector globally. As countries begin limiting greenhouse gas emissions, CST is an important option, on its own and as part of a broader portfolio of renewable energy technologies.
- Storage systems can improve the economics of CST plants and improve their value proposition to utilities. Storage provides a buffer against cloudy periods, extends generation to cover peak load, and can allow a CST plant to produce power after the sun has set, helping to meet baseload power demand.
- CST remains more expensive than coal as a generation source, but prices are expected to decline significantly as technology learning occurs. A carbon price of approximately $115 per ton of CO2 would be needed for CST (trough with 6 hours of storage) to become economically competitive with coal-fired power.
- This carbon price is higher than expected from the early stages of most cap-and-trade systems, but far lower than the carbon prices projected in some climate policy studies. The effectively limitless potential for CST acts as a ceiling for carbon prices and must be considered in relation to the significant costs of inaction—in other words, the economic damages from doing nothing to mitigate climate change. CST costs are still high compared to coal, but are expected to decline.
- CST has been disadvantaged by high commodity prices. CSTplants require large volumes of glass, cement, and steel. Future price trends for these commodities will have a significant impact on the cost of power and its competitiveness with coal, because CST replaces lifetime fuel payments with upfront capital in its cost structure. Equally important is innovation in the CST industry. Pilot designs include substitutable materials in key components (providing a hedge against commodity price spikes).
- Costs are expected to decline as new capacity comes online. Key areas of cost improvement will come through research and development (R&D), particularly in improved storage materials, optical design, mirrors, heat collectors, heat fluids, and plant operation. Most plants today are smaller than optimal, in some cases because of the structure of policy support (as in Spain). Larger plants (e.g., for parabolic troughs the optimal turbine size is between 150 and 250 MW) will produce additional economies of scale. Technical challenges will likely make larger plants impractical, but clustering multiple plants in proximity could reduce some fixed costs. Several simple policy options can accelerate CST deployment and bring down costs.
- The regulation and pricing of carbon is a reality in many markets. Traditional fossil fuels experience new competitive challenges under these conditions, and viable zero-carbon energy options stand to win big in the market for new power generation capacity.
- Under a carbon constraint, CST with storage will be attractive to utilities. However, continued specific renewable energy support will be necessary in the near term to drive investment, as carbon prices alone are unlikely to be sufficient in the near term to cover the cost gap between CST and coal. Neither U.S. nor EU carbon market prices is expected to exceed $100 per ton of CO2 in the near term (although prices in this range could occur by 2030, according to some recent modeling scenarios).
- In the near term, investment will be driven in part by policy incentives. The most generous incentives at present are provided through Spain’s feed-in tariff. This model is being taken up in some developing countries and may merit consideration in the United States. U.S. support based on tax credits for investment and/or production has proven less effective, largely because it is subject to periodic and uncertain renewal. The 2008 renewal of the U.S. Investment Tax Credit (ITC) extended the support for eight years, a much longer lifespan than previously offered. This is a step in the right direction; however, investors would benefit greatly from a more stable support regime.
- Another modification to the ITC in the U.S. allows utilities to invest directly in owning CST generation under structured tax equity deals. Previously, CST developers had to procure power purchase agreements (PPA) and tax equity investors on their own. Given the credit crunch, this is good news for the fledgling industry because it is a fresh pool of capital, but it may mean developers will need to produce more flexible business models.
- The ability of CST to displace baseload coal and reduce emissions will depend on deploying effective storage systems and on integrating CST into a portfolio of zero-carbon power generation options. While thermal storage systems for CST already work well, research, development, and demonstration (RD&D) support would be valuable and should be aimed at bringing down the costs for these systems.
- While the challenges of deploying CST in industrialized countries are being addressed, new coal plants are being built at a furious pace in rapidly developing countries. According to the IEA, China doubled its coal-fired generation between 2000 and 2006, and more than 40 percent of China’s expected $1.3 trillion investment in added generation capacity through 2030 will likely be coal-fired. Given the rapid growth of demand in developing countries, speeding up CST deployment in these countries by even a few years could make a huge difference to the emissions trajectory. Both China and India (but particularly India) could deploy CST technology to limit their rapidly expanding coal-building activities. New multilateral financing mechanisms such as the Clean Technology Fund managed by the World Bank should support CST deployment in these countries. As a promising option to reduce GHG emissions and improve energy security, CST should be a priority in international collaboration on research, development, and deployment issues.
- The wider application of CST will require a stronger and more integrated transmission system. In the U.S., a greater federal role and/or improved coordination between grid operators will be needed. In the EU, robust transmission links with North Africa will be critical and are already being developed.