Backup Power's Cost to Renewable Energy

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One of the main problems with renewable energy in its current state is the need for backup power generation to level out production. Since the wind doesn't always blow and the sun doesn't always shine, backup power, usually natural-gas-driven generation, is needed to smooth out the lumps.

This is something most people know about renewable energy, but how much does it really cost?

NV Energy and Navigant Consulting did a study with the backing of the Department of Energy to find out how much this backup costs. In the case studied in Nevada, the analysis showed backup generation costs utilities $3 to $8 per MWhr, or $0.003 to $0.008 per kWhr. This is something that should be considered when looking at how much it costs to put renewable energy on the grid.

The number will become more significant as manufacturers and utility-scale installers add more projects to their pipelines, something manufacturers have focused more on recently.

  • First Solar (NAS: FSLR) ended the third quarter of 2011 with 2.7 GW of projects in the pipeline and had added 654 MW in the first three quarters of 2011.
  • SunPower (NAS: SPWR) recently began construction on the 250-MW California Valley Solar Ranch, which will be owned by NRG Energy (NYS: NRG) and feed electricity to Pacific Gas & Electric.
  • LDK Solar (NYS: LDK) is getting into the utility and power plant business with a recent loan from China Development Bank to build two power plants in California totaling 8 MW.

With solar module sales slumping, manufacturers are turning to power plants as a way to create demand for their product. But as these plants get larger, the impact on the grid grows, something utilities need to deal with.

Solutions to a solar storage problem
Other solutions are beginning to arise, but few are ready for prime time. Pumped hydro and compressed air storage have been used on large scales in locations where it's feasible. A123 Systems (NAS: AONE) and Ener1 are working with utilities to test batteries for energy storage on a somewhat smaller scale right now.

But until a bigger solution is developed, utilities will have to use fossil fuel backup power with renewable energy, and that costs money for everyone involved.

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At the time this article was published Fool contributorTravis Hoiumowns shares of First Solar and SunPower, and has sold puts in SunPower. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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