In political terms, the issues of climate change and energy took a back seat for most of 2011. There was some modest progress at the Durban conference in December. Moreover, having given up on the idea of cap-and-trade legislation, the Obama administration took some significant regulatory measures including new fuel-economy standards and restrictions on old coal-fired power plants.
The truly significant developments, however, were not driven by politics, although they will have profound political implications. In 2011, nuclear power ceased to be a serious option for meeting the world’s energy needs, and solar photovoltaics (PV) finally became an option worth noting.
The “solar vs. nuclear” dispute had been largely symbolic for several decades. After rapid growth in the 1960s and 1970s, new installations of nuclear power came to a grinding halt. This was partly a result of safety fears created by the accidents at Three Mile Island and Chernobyl. Economic factors were even more significant. Far from being too cheap to meter, nuclear power turned out to be far more expensive than its main rival, coal, primarily because of unpredictable capital costs and generally high interest rates.
As a result, since 1977, when the River Bend plant in Louisiana commenced construction, not one new nuclear-power plant has been ordered and completed in the United States. The situation in most other developed countries was similar. Only where some combination of military funding and concern about national self-sufficiency allowed for substantial subsidies was there any new construction of nuclear-power plants.
Meanwhile, the case of PV was reminiscent of what used to be said about Brazil as a country of enormous but permanently unfulfilled promise—that is, it seemed PV was doomed always to be the energy source of an ever-receding future. Despite decades of promising press releases from research labs, the average price of PV cells at the beginning of the twenty-first century was more than $5 per installed watt, leading to a cost of more than 50c per kilowatt hour. The global installed base of PV totaled a mere 1.4 gigawatts (GW), about equal to one medium-sized coal or nuclear plant.
But even this modest figure overstated the case, since it refers to the capacity of solar cells. Even in favorable locations, a PV system generates the equivalent of only six hours at full capacity per day, implying an availability factor of about 25 percent, compared to 75 percent for conventional sources. (On the other hand, solar output broadly coincides with peak demand, making the power more valuable.)
The picture changed with the emergence of concerns about climate change and particularly with the adoption of the Kyoto Protocol in 1999. Even in nonsignatory countries such as the United States, it became clear that the days of coal-fired electricity were numbered.
Growing demand for electricity in the late twentieth century was met almost entirely by coal-fired (the United States alone added more than 200 GW) and gas-fired plants.
Economists typically argued that the appropriate response was to put a price on emissions of carbon dioxide and allow markets to decide the appropriate mixture of alternative energy sources, improved energy efficiency and reduced energy use. Governments, however, generally preferred to look for technological solutions.
This search took two main forms. First, there were a wide variety of measures to promote renewable energy, which primarily meant wind and PV. Wind power has historically been cheapest, but its intermittent nature and dependence on specific locations mean that it is unlikely to provide a comprehensive solution. So, there was a strong emphasis on measures designed to promote solar PV, the most notable of which were feed-in tariffs, in which households or firms that installed PV systems received a payment for the electricity they generated, typically well in excess of the prevailing market price.
The other big initiative was an attempt to restart the nuclear industry, referred to somewhat grandiloquently as “the nuclear renaissance.” The idea was to promote a streamlined regulatory process for a small set of standardized designs. These designs, it was hoped, would address the safety concerns that had plagued older systems and reduce the time and cost of construction. In the United States, the big initiatives were the Nuclear Power 2010 program, unveiled in 2002, and the Energy Policy Act of 2005, which authorized $18.5 billion in loan guarantees. All of these initiatives were carried on and extended by the Obama administration, which proposed in January 2010 to triple federal loan guarantees.
For some years, neither of these approaches bore much fruit. Although installations of solar PV grew, the price remained stubbornly high. This was partly because the industry outgrew its low-cost source of polysilicon, taken from offcuts for wafers made for the semiconductor industry. As late as 2009, the average price of modules was above $4.50/watt. Prices began falling thereafter, and by the beginning of 2011 had fallen more than 20 percent.
The unexpectedly rapid fall in prices meant that the subsidies embodied in early feed-in tariff schemes were now absurdly generous. Households and firms rushed to take them up, and governments, in response, scrambled to scale back their generosity. The process, along with rapid growth in installations, produced a boom and bust cycle in the industry of which Solyndra (which failed in 2011) was the most famous, but far from the only, casualty.
Meanwhile, after an initial rush of enthusiasm proposals for new nuclear plants ran into economic reality. When the deadline set under the Nuclear Power 2010 program expired, twenty-six proposals had been received by the Nuclear Regulatory Commission. But by the beginning of 2011, more than half of these had been abandoned, and ground had been broken on only two sites, with a total of four reactors.
The nuclear renaissance was already tottering, but the disaster of Fukushima was the coup de grâce. It’s true, as nuclear advocates have argued, that the plants at Fukushima were old and that a disaster as big as the March tsunami was hard to plan for. No doubt the failures in cooling and containment systems that gave rise to the present crisis can be overcome and reactor designs modified to improve safety.
But safety doesn’t come cheap, and redesigns mean delays. With no prospect of any further increases in subsidies and loan guarantees, it seems likely that most of the proposals for new nuclear-power plants in the United States will be abandoned. And, if only for reasons of diversification and speed of construction, the lost Japanese reactors will probably be replaced by gas-fired plants, with some renewables. Meanwhile the Europeans, who were reconsidering nuclear power, have moved decisively in the other direction. Even China has scaled back its targets for nuclear construction and extended the timescale, effectively halving the proposed rate of construction. Such a modest program will not produce the scale economies and operating experience needed to generate a substantial reduction in the cost of nuclear power over the next two decades.
Meanwhile, the cost of PV has already fallen well below that of nuclear and is set to fall further. The average retail price of solar cells as monitored by the Solarbuzz group fell from $3.50/watt to $2.43/watt over the course of the year, and a decline to prices below $2.00/watt seems inevitable. For large-scale installations, prices below $1.00/watt are now common. In some locations, PV has reached grid parity, the cost at which it is competitive with coal or gas-fired generation. More generally, it is now evident that, given a carbon price of $50/ton, which would raise the price of coal-fired power by 5c/kWh, solar PV will be cost-competitive in most locations.
The declining price of PV has been reflected in rapidly growing installations, totalling about 23 GW in 2011. Although some consolidation is likely in 2012, as firms try to restore profitability, strong growth seems likely to continue for the rest of the decade. Already, by one estimate, total investment in renewables for 2011 exceeded investment in carbon-based electricity generation.
The stunning decline in the cost of PV has critical implications for the debate over climate policy. It is now clear that the cost of decarbonizing the economy, and the associated economic disruption, will be far lower than was suggested by previous estimates and even by many recent estimates that use out-of-date cost estimates. In this context, the continued adherence of most U.S. Republicans to conspiracy theories, in which the science of climate change is a cover designed to bring about radical economic and social change, is even more nonsensical than before. Perhaps 2012 will be the year when sanity finally prevails on this issue.
John Quiggin is the Hinkley Visiting Professor at Johns Hopkins University and an Australian Research Council Federation fellow at the University of Queensland. He is author of Zombie Economics: How Dead Ideas Still Walk Among Us (Princeton University Press, 2010).