Solar vs Coal – the Math

Solar, solar solar.

If Solar doesn’t work for most of the evening, how can it compete?
Wouldn’t we be better off with Coal? Isn’t coal better for generation – you know, its baseload!

Yes, its another post based of an answer to something asked on MyBB!

At first glance, you’d think so, however the math tells a different story.

As I like to do in my posts, I’ll first go over some basics

Solar PV farms are built to supply electricity at a certain price. This price per kW.h is usually awarded with an REIPP auction where vendors bid to supply a given amount of electricity – typically 100MW or less at a certain price.
The price paid is then guaranteed by the government for every kW.h supplied for a 20 year contract, typically with small escalations per year.

The REIPPP winner then supply electric at that price for their hours of operation.
Eskom only pays them for energy delivered.
When they don’t deliver, they don’t earn money for the vendor, and Eskom doesn’t pay.

For Eskom, this is generally a win/win (although this has been abused – see the insert below for some unsubstantiated detail.

I won’t argue that quite a few of our REIPP Renewable bid prices weren’t also hideously overpriced due to “BEE” partnerships with well connected ANC members either.

Even with that graft built in, its still cheaper than Nuclear, or even our cheap coal, especially in the later more recent phases.

The earlier ones they were creaming it though.

Ok, so Solar PV Farms sell power, and only make money when they sell electricity, and Eskom only pays when they make it. Good so far.

Now what about night time? Solar panels don’t work at night!

As you may have realised, reading some of my previous posts – we need electricity at certain times of the day, at others not so much. When the Solar PV farms are supplying – roughly correlates to when we *really* need electricity.

In terms of supplying need – if we put a financial aspect to the electricity in terms of time of day usage/ and costs, daytime (pre-solar times) would have been the most expensive time, then early evening, and electricity generators would make the most money supplying for those times.

Costs map to needs. Higher needs means higher selling cost. Lower needs (i.e. late evening – early morning) is pretty worthless to most generators as their costs are still the same, but the income is low, as the demand is also low.

Solar has already changed that financial timing, as daytime is now the cheapest generation, and coal plants (in other countries) are now told to idle during their profitable time, and to run when its their least profitable time.

Solar is actually just so cheap to implement now, that daytime pricing is turning or has turned cheaper than overnight pricing in some countries.

Alternately, you can think of it like this – in a post solar world – daytime a coal plant is idling and can’t sell electricity. At evening peak, they can sell maybe 3-4 hours of peak expensive electricity, then for another 10 hours 1/2 price power (overnight).

That 1/2 price power or “cheap power” is essentially your “Baseload” generation i.e. inflexible generation.
It’s needed, but not all our generation is needed to make it. In South Africa, “baseload” is roughly 20GW, but our generation capacity is 40GW. So overnight up to half our generation essentially sits idling, or gets swapped around for maintenance. This “Baseload” is actually dropping year on year, as we get more efficient – LED lighting, and Solar Geysers have removed a not insubstantial amount from our grid requirements already. Residential consumers dropping off grid and adding solar are also dropping those numbers. I’d make a guesstimate a good 1GW of requirement has been shaved off the grid from residential solar alone daytime, and 100-200MW of storage shaved off at night from residential solar pv + battery. Now that business can go to 100MW without 2 years of NERSA paperwork, I expect those figures to accelerate rapidly, and baseload to drop even further, faster.

Back to coal. Previously they were selling for 10-12 hours of expensive power with good profit, then another 10 hours of 1/2 price power. This has changed, and the economics of coal now don’t really work, as their costs are still the same per hour of operation.

If we make some semi-fictitious costing and output calculations, I can show this.
Running costs for raw material are around R0.4/kW.h for coal power stations (based on Eskom 2020 pricing)

Previously (i.e. pre-solar PV) a coal plant could sell 10-12 hrs at R1 /kW.h (peak rates!), and 10 hours at R0.5/kW.h (off peak).
So, in a day they’d make R0.6 x 12hrs + R0.1 x 10hrs profit per kW.h / day after costs.
= R8.2 / day profit * capacity in mW

They need to run for similar times now, but now only can sell for much lower pricing.
R0.6 x 3hrs (at evening peak) + R0.1 x 10hrs (overnight/ off peak rates). This equates to a far lower number
= R2.8 / day profit * capacity in mW

As you can see, coal is starting to make far less income than it used to. This covers running costs (i.e. coal + transportation costs), but doesn’t cover capital depreciation, loans, maintenance costs, water, carbon taxes etc. Due to this, it now makes a lot less financial sense to run coal as you can’t make a profit, which is why a lot of coal generation is now being replaced elsewhere, and more variable generation like wind is being added.

You can see this reflected in loans now – very few if any lending institutions will now lend for coal plants – the finances just don’t make sense anymore

You can tacitly see this here –

It’s never been this expensive to finance a new coal power plant

The cost to finance new fossil-fuel infrastructure, especially coal, is rising, while the cost for new renewables is falling fast.

Solar still has another knife to stab in the back of coal generation.

Financially its becoming feasible to eke a few more hours out to cover the evening peak by adding storage.
A Solar PV plants operation time can be extended fairly reasonably now with battery, which is making Solar PV + battery start to become more competitive further into the evening.

That is basically the last nail in the coffin for coal.

So, while a Solar Plant may only generate for a few hours a day, the economics of that generation have a huge knock-on effect, especially on other more expensive “full time” generation.

Instead of thinking that a 100MW coal plant delivers at 24/7, rather think of it as an asset that sits there for 10hrs of the day pumping out at full blast, and the other 14hrs of the day idling.
Thats more like our usage.

(Well, it would be if we had sufficient generation here in South Africa, but thats another story – we’re deliberately being held back by Mantashe’s policies, and the slow pace of REIPPP).

Even with limited output hours – roughly 30% of the day, the economics of solar are so good, that it makes sense.
Tell me what other assets you have that make financial sense (and cents!), and decent profits working for only 30% of the time!

These financial aspects of Solar PV have changed how we look at costs. i.e. the blended cost of 24/7 power can include more expensive temporary generation now.

The financials for a lot of these have changed significantly, so it makes more sense for Electricity suppliers to run 2-3 hours of natural gas at R4/kW.h than it does to run a coal station for 24hrs “just to have it running”.
Eventually we’ll have a basket of supply, which will predominantly be Solar, Wind, supplemented with some existing Coal, some existing Nuclear, and as storage comes down in price (which it is, rapidly), more storage. The coal and Nuclear will gradually be phased out as it becomes less economical to run. Nuclear will be kept on as long as possible, as existing Nuclear is still cheaper than renewables (although new Wind generation costs are starting to bite into even that low level).

In summation. – Solar is so cheap now, that the economics of things are really out of whack. Wind is even cheaper.
Solar is reliable and predictable. Wind slightly less so, but the economics of both mean that it’s irrelevant, as again, the blended costs are still cheaper than other generation.

Home users are finding that solar is so cheap and power so plentiful, that they don’t know what to do with the excess in summer. This is a good problem to have, especially when it can be offset by not using other polluting generation. On an industrial level, this will lead to interesting projects for excess power. I can imagine excess unneeded power being diverted to non-time sensitive uses where power input can be scaled up and down without harming the outputs – eg Desalination plants run on excess solar, pumped storage, or other things that will come to fill the void.

This was actually the oft promised lure of Nuclear – power so cheap, we can’t even bother to meter it. Solar PV and Wind will actually be the methods to bring us there.

The TLDR; (too long, didn’t read) for all this is my repetitive – we don’t need 24 hour generation.
We need generation when our requirements are high. Solar maps relatively well to those needs, and is so cheap any other form of generation costs too much.

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