The Clean Energy Puzzle

The Cheapest Electricity Ever

Solar has the lowest levelized cost of electricity (LCOE) of any generation technology. If we're trying to minimize system cost, shouldn't we just build all solar?

At $50/MWh, solar is half the cost of clean firm power. The answer seems obvious...

Why Solar Is So Cheap

Solar's low cost comes from its simplicity: no fuel, minimal operations. It's 86% upfront capital cost. But this raises a question: what happens if you can't use all the energy you generate?

But Something Strange Happens

When we optimize a real power system to meet higher clean energy targets, the cost doesn't stay at $50/MWh. It rises—sharply at high targets.

The answer has two parts: an energy problem and a capacity problem.

The Timing Mismatch

Look at a typical day: electricity demand peaks in the evening when people come home from work, but solar production peaks at midday. This fundamental mismatch is the root of the challenge.

Solar produces the most when we need it least, and produces nothing when we need it most.

The Solar Ceiling

What happens if we just keep building more solar? We hit a ceiling. No matter how much solar you build, it can only provide about 50% of annual electricity demand. Storage helps—but only so much.

Each hour of storage raises solar's ceiling by roughly 5-8 percentage points. But diminishing returns set in quickly.

The Cost of Going Solar-Only

What if we tried to reach high clean targets with only solar and storage? Each line shows a different storage duration. Watch the cost explode as you approach each ceiling.

But what if storage gets cheaper? Watch how falling battery costs bend the curve:

The Real Cost of Solar

Here's the key insight: solar's $50/MWh LCOE assumes every MWh generated gets used. But as curtailment increases, the effective cost per useful MWh rises dramatically:

Why Cheap Gets Expensive

Beyond energy value, there's capacity value: can you count on a resource to deliver power when you need it most? Each resource has a ceiling on how much clean energy it can provide on its own:

Solar alone maxes out at ~50%. Wind reaches ~70%. Only clean firm power can get you to 100%—with nearly linear returns.

But there's a second problem. Even if we could use all the energy, we still need reliability...

Can Storage Save Solar?

Storage shifts solar energy from midday (when abundant) to evening (when needed). Does it solve the reliability problem?

What About Wind + Storage?

Wind is already better distributed across hours. How much does storage help?

This is where clean firm power comes in. It solves both problems...

How the Optimal Mix Evolves

Now watch what happens to the optimal resource mix as we push for higher clean energy targets:

Where the Cost Comes From

At a 95% clean target, here's how each resource contributes to total system LCOE:

Clean firm is 38% of cost but provides the reliability that makes 95% clean possible. The $50 gap between solar's LCOE and system LCOE? It's the cost of reliability.

VRE Systems Still Need Substantial Gas Capacity

What happens if we try to reach high clean energy targets with only solar, wind, and batteries? Let's optimize the system at each clean target using only these three technologies.

But Backup Gas Is Cheaper Than You Think

The previous chart shows we need a lot of gas capacity. But here's the surprise: it barely affects the total cost.

The Leap in Action

To see the difference, compare how a system operates during a challenging summer week at 70% vs 95% clean:

Regional Differences

Geography matters. The optimal clean energy strategy varies by region based on available resources:

• Texas: Excellent wind means less reliance on clean firm—and lowest cost.
• California: Balanced solar and wind. Moderate clean firm needs.
• Florida: Limited wind forces heavy reliance on clean firm—highest cost.

The Gas Price Hedge

Natural gas prices are volatile. How exposed is your system to fuel price fluctuations? And at what gas price does clean energy become cost-competitive?

Gas Price Exposure Decreases as You Go Cleaner

A gas-only system is fully exposed to fuel price volatility. But as you add more clean energy, your sensitivity to gas prices drops dramatically:

When Does Clean Energy Become Cheaper?

The crossover point depends on both gas prices and renewable costs. Cheap renewables make clean energy competitive at lower gas prices. Expensive renewables need higher gas prices to compete:

At 70% clean with medium-cost renewables, clean energy becomes competitive at ~$6/MMBtu. At 90% clean, you need ~$8/MMBtu. But if renewables get cheap, these thresholds drop significantly—making clean energy competitive even at lower gas prices.

What If No Clean Firm Power?

Clean firm technologies are still emerging. What if we can't rely on them?

The Clean Firm Cost Crossover

Clean firm is critical for deep decarbonization—but costs really do matter. The competitiveness of clean firm depends on both its own cost and the cost of renewables. This creates a dynamic crossover: when renewables are cheap, clean firm must also be cheap to compete. When renewables are expensive, clean firm has much more room to play.

80% Clean Match Target

At 80% clean energy, renewables can handle most of the load. Clean firm only makes economic sense at low costs:

Even with expensive renewables, clean firm struggles to compete above $7,000/kW at this target. Renewables + storage are sufficient for most of the decarbonization.

90% Clean Match Target

At 90% clean, the picture changes. Clean firm becomes valuable—but how expensive can it be?

• Ultra-cheap renewables: If solar/wind/storage hit rock-bottom prices, clean firm needs to be around $2,000-3,000/kW to play a role. These are prices China is approaching today.
• Current renewable costs: At today's typical prices, clean firm is economic up to $5,000-7,000/kW—a sweet spot where substantial clean firm capacity (20-50 MW, or 25-70% of clean capacity) makes sense. This range has been demonstrated globally.
• Higher renewable costs: If renewables stay expensive, clean firm remains valuable even above $7,000/kW. The cost crossover moves in clean firm's favor.

100% Clean Match Target

At 100% clean energy, firm capacity is essential. Clean firm becomes highly competitive even at high costs:

Notice how the curves flatten—clean firm maintains significant capacity even at $10,000+/kW in many scenarios. The "last 10%" problem creates strong demand for firm power, making clean firm competitive at prices that would never work at lower targets. The higher you want to go, the more competitive clean firm becomes—even at very high prices.

Financing Impacts Technologies Differently

Different technologies have different cost structures. Capital-intensive technologies (solar, wind, nuclear, geothermal) are very sensitive to financing costs, while fuel-heavy technologies (gas) are less sensitive but exposed to volatile fuel prices:

• Solar/Wind: Nearly 100% upfront cost. Steep LCOE increase with higher discount rates.
• Nuclear/Geothermal: High capex, minimal fuel. Very sensitive to financing conditions.
• Gas: Low capex, high fuel. Flat slope—financing matters less, but fuel prices matter more.

Financing Matters More Than Tax Credits

Policy debates focus on tax credits. But for capital-intensive clean energy, financing costs may matter even more:

Wind Quality Matters

Not all regions have equal wind resources. Compare how solar+storage+wind performs across four regions with different wind quality:

The Optimization Trap

The intuitive approach—keep adding whichever resource gives the best $/MWh improvement—fails at high targets:

Beyond Technology Costs: System Integration Matters

The analysis above uses standalone technology costs. But the real choice between VRE and clean firm depends on system integration costs that don't show up in LCOE.

You cannot sidestep intermittency when thinking systemically. Integrating variable resources to reliably meet load demand is not trivial and not cheap—it requires careful optimization of complementary technologies, transmission infrastructure, and storage. The challenges are real and the solutions are region-specific.

Bottom line: Transmission costs can shift the optimal balance. In transmission-constrained regions, the clean firm threshold may be 85% instead of 90%. In regions with cheap transmission or strong renewable co-location opportunities, VRE alone might reach 90-92%. The charts above show technology costs—real decisions must account for infrastructure too.

What This Means for Clean Electricity Procurement

If you're procuring clean electricity—whether as a corporate buyer, a data center operator, a clean steel manufacturer, or anyone seeking to demonstrate low-carbon Scope 2 emissions—the analysis above has critical implications for your procurement strategy:

Temporal Mismatch Really Matters

Everything we've discussed shows that matching supply and demand hour-by-hour is not trivial. Volumetric accounting—buying enough clean energy annually to match your consumption—is fundamentally different from actual temporal matching. A 100% volumetric match can still leave you pulling from the grid (and its emissions) during many hours of the year.

You Can't Net Meter Your Way Out of System-Level Constraints

The lesson: what works at small scale doesn't necessarily scale to the system level. A procurement strategy that shows 100% matching for your load might contribute zero marginal clean energy to the grid if you're just buying solar in a region that's already curtailing solar.

This has profound implications for how you evaluate renewable energy procurement:

• Not all clean electrons are created equal. Adding more solar to a solar-saturated region contributes less real decarbonization than adding the missing piece (storage, wind, or clean firm).
• The next cheapest resource may not be the right resource. If your region is approaching the solar ceiling, buying more solar PPA capacity might be cheap—but it's not addressing the system's actual constraint.
• Understanding the regional end-state matters. What does your region need to reach 90-95% clean? Is it cheap storage? More wind? Competitive clean firm? Your procurement dollars are most impactful when they catalyze deployment of the missing resources, not just the cheapest available option.

The Catalytic Role of Clean Electricity Procurement

Clean electricity buyers can be incredibly catalytic precisely because you can afford to take on resources that are needed but not yet cost-competitive:

Key takeaway: Clean electricity buyers should think like system planners, not just cost minimizers. The most impactful procurement strategy is one that accelerates deployment of the resources your region needs to overcome its specific barriers to deep decarbonization—whether that's cheap storage, competitive offshore wind, or affordable clean firm. Every region is different, and the goal is to catalyze the technologies that unlock progress, not just buy the cheapest kWh available today.

Not Every Region Can Build Everything

The analysis above assumes all technologies are available. But real regions face constraints that make diverse portfolios even more critical:

This is why technology diversity matters: No single region has access to all resources, and no single technology works everywhere. California can't rely on offshore wind (limited deepwater sites). Florida can't count on onshore wind (poor resource). The Northeast faces nuclear opposition. The Plains have transmission constraints to demand centers.

Constraints compound: A region with no wind access might only reach 60% clean affordably with solar+storage alone—far below the 85-90% possible in regions with strong wind. Stack on nuclear opposition or geothermal unavailability, and the ceiling drops further. Each missing technology narrows the path to deep decarbonization.

Each technology has complementary strengths and weaknesses. A region that can't build nuclear needs exceptional wind or affordable clean firm capacity. A region with poor wind needs more solar+storage or geothermal. There are multiple pathways to decarbonization that depend on the relative price and availability of resources—each region needs its own solution, and the constraints can be severe.

Some regions are better positioned than others—Texas has excellent wind, California has exceptional solar, the Pacific Northwest has hydro. But every region needs a strategy. Understanding these resource advantages and constraints is essential for realistic decarbonization planning.