Economics of alternative energy improve

Many household budgets are feeling the impact of high gasoline prices. Imagine if you ran a power plant.

Two reports released on Tuesday make the case that alternative forms of energy--everything from plug-in hybrid cars to solar power plants--are becoming more cost-competitive with fossil fuels.

Clean-energy research firm Clean Edge, in a report done with nonprofit Co-op America, said that the United States could get 10 percent of its electricity from solar energy by 2025 under the right circumstances.

Meanwhile, financial analysts at AllianceBernstein said that hybrid vehicles already offer a lower cost of ownership than gas-only cars, a situation that could dramatically increase market share in coming years.

The rising costs of oil, natural gas, and coal are having a profound impact on utilities and automakers. But that's only one factor making alternative sources of electricity or transportation more attractive.

The capital outlay needed to build power generation facilities is on the rise, too, because of higher commodity prices. Construction costs of gas, coal, and nuclear power plants have increased about 75 percent since 2004, according to Bernstein Research, citing Department of Energy and company reports.

In addition, regulations to limit carbon dioxide emissions--expected to take hold in the next few years--significantly alter the cost of delivering electricity from fossil fuels, particularly coal.

"The economics of traditional fuels are changing," said Richard Keiser, global technology strategist at Bernstein Research. "The perceived environmental costs of these (fossil) fuels is no longer zero."

As a result, wind and geothermal power are now cost-competitive with operating fossil fuel-powered plants. Keiser predicted that wind growth will be in the double digits for at least the next decade.

The push to reduce greenhouse gas emissions is expected to play out in the transportation sector as well.

Keiser said that with gas at $3.18 a gallon or higher, the total cost of ownership for a hybrid car is lower than a conventional one. He assumed 15,000 miles driven per year, a six-year life, a $5,000 price difference, and mileage of 25 miles per gallon versus 45 for the hybrid.

"Consumers don't know this...and automakers haven't given them a lineup (of cars) to make this choice easy," he said. But if gas prices persist and biofuel options remain limited, market share for hybrids could rise "dramatically" from 2 percent of new cars today.

Closing the price gap
Bernstein's Keiser said that solar electricity still remains more expensive than fossil fuels. However, Clean Edge analysts said that the gap is closing, predicting that solar will be the same cost as traditional forms of power generation--or at "grid parity"--in 2015.

In its report, it provided a plan for how U.S. utilities, prompted by regulators and policy makers, could lead a transition to 10 percent solar power in the U.S. in 2025.

That's a big jump from less than 1 percent today, but authors Ron Pernick and Clint Wilder said they see utilities considering solar far more seriously today than any other time.

In the past few months, there have been a number of deals signed to build concentrated solar power plants in the Southwest and more are expected in coming months, Pernick said.

"Among the utilities we talked to, they said 'Yeah, this (target) would be difficult but it's achievable.' That's an important shift," said Pernick.

Solar energy provides a hedge against rising fuel prices and solar energy's peak output is the middle of the day, which is a more costly time to provide electricity, they noted.

On the retail level, Clean Edge predicts that more homeowners and businesses will install solar photovoltaic (PV) panels. Of the total 10 percent forecast, solar PV represents 8 percent.

The report forecasts a regular decline in the installed cost of solar panels, so that solar is at price parity with traditional electricity generation in places with high electricity rates in 2015 and in most other places in the U.S. by 2025.

Despite the bright outlook of this report and similar targets, the solar industry right now is troubled by policy uncertainty that can slow, rather than speed, adoption of solar energy.

An investment tax credit for renewable energy projects is set to expire at the end of this year and several attempts to extend it have been derailed.

Pernick said that if the tax credit is not extended this year, he expects it to be extended next year for five years. Solar demand will also be driven by state-level mandates, called renewable portfolio standards, for utilities to use renewable energy sources.