Alternative Energy No Longer Alternative
Declining costs poised to move renewables mainstream
Reprinted from EEnergy Informer (Mar. 2012, Vol. 22, No. 3) with permission.
Fereidoon P. Sioshansi
Editor & Publisher, EEnergy Informer
(Walnut Creek, California)
The World in 2013, a publication of The Economist, boldly declares, “The word ‘alternative,’ with its connotations of hand-wringing greenery and a need for taxpayer subsidy, has to go. And in 2013 it will. ‘Renewable’ power will start to be seen as normal.”
Not all prior forecasts of The Economist, of course, have come through. This one is likely to be among them. True, renewables have experienced tremendous growth in the recent past, 86% for solar energy in 2012 alone. And their performance is improving while costs continue to fall with mass production and economies of scale. But ask any renewable energy advocate or their lobbyists and they will tell you that the time to cut subsidies and remove mandatory targets may be around the corner but has not quite arrived yet.
In early February, Vestas, among the leading wind turbine manufacturers publicly acknowledged that the era of declining costs for wind generated power is over. Wind technology has steadily improved over time, and costs have been declining with bigger and more efficient turbines, but manufacturers are now confronting the law of diminishing marginal returns – future turbines may be better, more durable, more reliable, and enjoy higher capacity factors – but per unit cost of electricity generated is not coming down as it did for decades. Rising labor and material costs and technological barriers are canceling any gains in larger turbines, taller towers, and improved design. Researchers at Lawrence Berkeley National Laboratory (LBL) broadly concur (second graph).
Nevertheless, many renewable advocates believe that wind has already reached or is near grid parity.
Solar power, whether photovoltaics (PVs) or concentrated solar power (CSP), have not reached those limits yet, continuing to exhibit falling costs and improved performance. According to Richard Swanson, the founder of SunPower, a California-based solar PV manufacturer, cost of solar cells falls by 20% for each doubling of the global manufacturing capacity. No one knows how long this so-called Swanson-effect may last (first graph) but few would argue with the underlying empirical evidence (above graph) which shows the continuous decline in price of PVs, from roughly $77 per watt in 1977 to around $0.74/W forecast for 2013.
In case you are not impressed, compare this price trend with those of nuclear power, which have increased over time – a bizarre outcome which has doomed nuclear’s commercial prospects in countries where investors, rather than governments, make decisions.
Where else can we look for evidence that renewables are no longer niche or marginal players? According to the Federal Energy Regulatory Commission (FERC), renewable energy sources – namely biomass, geothermal, solar, water, wind – accounted for 49% of all new generating capacity installed in 2012 in the US, a total of 12,956 MW. The corresponding numbers for 2011 were 8,571 MW, 39% of new generation installed. Renewables now account for 15.4% of US installed capacity and 13% of generation.
“The perception that fossil fuels are cheap and renewables are expensive is now out of date,” according to Michael Liebreich, Chief executive of Bloomberg New Energy Finance (BNEF). According to a study released in early February 2013, unsubsidized renewable energy is now cheaper than electricity from new coal- and gas-fired power stations in Australia. The news is even more surprisingly given that currently some 90% of power generated in Australia comes from coal-fired plants and Australia is the biggest coal exporter – to be overtaken by Indonesia by 2017, according to the International Energy Agency.
BNEF, which claims to have comprehensively modeled the cost of generating electricity in Australia from different sources, concluded that electricity can be supplied from a new wind farm at a cost of AUS$80/MWh (roughly US$83 at current exchange rate), compared to $143/MWh from a new coal plant or 116/MWh from a new baseload gas plant.
These figures include the current carbon tax under the Gillard government’s carbon pricing scheme. But BNEF says that even without the carbon tax, wind is 14% cheaper than new coal and 18% cheaper than new gas.
Liebreich added, “The fact that wind power is now cheaper than coal and gas in a country with some of the world’s best fossil fuel resources shows that clean energy is a game changer which promises to turn the economics of power systems on its head.” BNEF predicts that by 2020, large-scale solar PV will also be cheaper than coal and gas, when carbon prices are factored in. By 2030, dispatchable renewable generating technologies such as biomass and solar thermal could also be cost-competitive.
Wind, by far the largest contributor in 2012, added 10,689 MW followed by solar at 1,476 MW and biomass at 543 MW. By comparison, new US natural gas additions totaled 8,746 MW and 4,510 MW for coal (graph below).
That is the good news. The not so good news is that except for hydro, geothermal and most biomass plants, wind and solar capacity suffers from low capacity factors – intermittency of wind, lack of sunshine at night or in inclement weather.
This means that a lot more renewable capacity will be needed to make a big dent in the overall generation figures. Installed generating capacity, as everyone knows, does not equal actual generation.
To underscore this point, nuclear plants account for 9.24% of the US installed capacity yet contribute roughly 20% to total generation. The corresponding numbers for renewables are 15.4% and 13% – and that is mostly because of the contribution of hydro and geothermal generation, where high capacity factors apply, otherwise the percentage for renewable generation would be lower.
The most amazing feat of renewables is their rapid growth over the past decade as shown in graph on extreme right. By December 2012, global installed wind capacity exceeded 273 GW and 100 GW for solar, having started from a small base in 2001. Solar energy grew by an astonishing 139% and wind by 17% in the US in 2012, just as an example.
Despite the intermittency issue, investment in renewables is projected to continue, boosted by subsidies, feed-in-tariffs and mandatory requirements when they apply. GlobalData, a market research firm, for example projects global wind capacity to reach 737 GW by 2020. Solar installed capacity, currently far behind wind, could conceivably catch up at some point, especially if the Swanson-effect (first graph) continues.
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