Ignoring the cost of capital

I blogged on Wednesday the following graph:



I was pointing out the Greens are against nuclear, coal and large hydro which doesn’t bode well for the future cost of power.

Now Gareth Hughes has responded with this graph:



But do you see what is missing? The cost of capital or construction. These costs are often the largest part of total costs.

Of course once you have a dam in place, or a wind turbine in place, the operating costs are less than having to keep digging up coal from the ground. But capital is not free (unless you print money!) and there is an ongoing cost to capital – either interest or opportunity cost.

So if you look at the graph I provided, it shows that solar has no operating costs (of course) but huge construction costs.

Now don’t get me wrong. I think renewables are the future. I think wind, hydro, solar and even tidal are part of our future energy supply. But they need to be cost effective. Blanket bans on coal and large hydro are not the way to go.

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