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Published on April 10th, 2012 | by Thomas Gerke

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Renewable Electricity Supply to be Cheaper by 2030

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April 10th, 2012 by
 
 

Macro-Economic Benefits

An increasing number of countries have formulated policies to introduce renewable energy sources into their electricity supply in order to combat global warming or to decrease their dependency on imported fossil fuels. A positive side effect of this development has been the macro-economic benefits gained by each society that starts this transition to a solar- and wind-powered economy. Green jobs and regional value creation, better air quality and health benefits, and many more positive results can be observed all over the world.

Of course, the transformation of the energy system isn’t free. Investment is needed to introduce new technologies and build the infrastructure that suits the requirements of renewable energy sources. Governments all over the world have developed different kinds of incentives to encourage the private investments that are needed to reap these climatic and economic benefits. While there are many approaches to the issue, the most successful and cost-effective method to date is a feed-in tariff system.

Over the course of more than 20 years, Germany has experimented with all sorts of policy incentives — tax credits, quota systems, loan programs, and, for several years starting in the year 1991, there was a primitive feed-in tariff system in place. These programs worked somewhat, but the results were rather mediocre.

The real breakthrough came with the “Renewable Energy Sources Act” and the comprehensive feed-in tariff system in included. It created the necessary investment environment for new participants and has allowed them to create entire new industries and exponential growth in renewable energy generation ever since.

Micro-Economic Benefits Too?

The macro-economic benefits of this successful law are obvious. More than 375,000 jobs in what is now called the “renewable energy industry sector,” a reduction of energy imports and environmental damage worth several billion euros, and a significant reduction of CO2 emissions. Due to the way renewables are being integrated into the conventional energy system, they have actually lowered the price of electricity at the European Energy Exchange.

However, the micro-economic effect of this successful policy — the down-side, if you will — is increased end-consumer electricity prices due to a surcharge that pays for the feed-in tariff. Today, the mix of all renewable energy sources paid for by the feed-in tariff produces electricity for approximately 16 ct/kWh. Compared to the average 6ct/kWh required for electricity generated by the mix of conventional steam-powered power plants, it’s no surprise that investing in such a system must seem like economic non-sense, especially in our current culture of tunnel vision economics that has taken root in the minds of our political elite.

It’s About Tomorrow, Stupid!

The typical result of this tunnel vision, is that most critics of renewables are totally ignorant of the fact that it’s beyond stupid to compare building blocks of a new system with the results of a system that has been established and subsidized for over a century.

Most nuclear reactors are reaching the end of their lifetime, powerlines are becoming outdated, and many fossil fuel power stations are approaching closure. That means that, over the course of the next few decades, almost the entire conventional energy system has to be replaced simply because of old age. Since this is a long-term process, it’s important to look at the long-term trends. And, boy, it doesn’t look good for the conventional energy sources. Across the board, a combination of necessary new standards and rising fuel costs increase the cost of electricity generation of new conventional power plants.

With renewable energy sources, it’s the other way around. Technologies to harness renewable energy are getting cheaper to install every year. PV solar prices fell by more than 60% within just a few years and wind power is now cheaper than new coal or nuclear. The trends are very clear.

So, What about 2030?

Now, a recent study commissioned by the German Ministry of the Environment has come to the conclusion that the transition to renewable energy sources will lead to cheaper electricity prices over the course of the next two decades.

Some of the leading German research institutes were asked to analyse the feasibility of the renewable energy goals of the German government and the economic implications of this transition. Among the institutes was the German space agency DLR and the famous “Fraunhofer Institute for Wind & Energy Systems” (IWES).

Using learning curves for renewable technologies based on experience of similar technologies and recent developments, the study tried to look into the future. Based on experience and the probable mix of renewables in the years to come, they simulated the price per kWh.

The result:

With the rate of introduction of renewables continuous till 2030, and the goals being met, the average price of electricity generated from a mix of renewable energy sources will be at an average of 7.6 cents per kWh by 2030. The trend at that time will continue to be downward. At the same time, the price of “conventional” fossil-fuel-powered electricity generation will already be at approximately 9.0 cents per kWh. That means that renewable electricity supply will be cheaper by 2030 or earlier.

Even though the numbers are the result of computer simulations and countless hours of work, it has to be noted that predictions of the future in terms of facts and figures are the modern-day equivalent of looking into a crystal ball. But where do you think prices and the wider national economy (macro economics) would be headed if we stuck with a dying conventional energy system that will only get more expensive over time? 2030 is just 18 years in the future, so most of us will be around to see how it turns out.

One thing is certain: Beginning the inevitable transformation of the energy system at conventional energy costs of 6 cents per kWh is definitely cheaper than starting at 9, 12 or 15 cents per kWh.

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About the Author

is a close observer of the scientific, political and economic energy debate in Germany and around the globe. Inspired by the life's work of the renewable energy advocate Hermann Scheer, Thomas focuses on spreading information that showcase the possibilities & opportunities of a 100% renewable energy system. Though technology is key for this energy shift, he also looks at the socio-economic benefits and the political, as well as structural barriers.



  • Will E

    my house is energy free. Solar and heat pump.
    I make 3000 euros a year locally produced clean energy income.
    Hoogezand, where I live has 18000 houses
    Hoogezand can produce clean and local
    18000 x 3000 euros a year
    is 54 million a year
    10 year makes 540 million
    20 year makes a billion plus
    clean and easy

    money that is now burned in gas heaters.

  • Pingback: Los Angeles Solar Feed-in Tariff

  • Raphael Makokha Otakwa

    Thom, kindly help me access the report on the study commissioned by the German Ministry of the Environment, which came to the conclusion that the transition to renewable energy sources will lead to cheaper electricity prices over the course of the next two decades and which involved some of the leading German research institutes like the German space agency DLR and the famous “Fraunhofer Institute for Wind & Energy Systems” (IWES).

    Thank you.

    Regards,
    Raphael

  • Raphael Makokha Otakwa

    Nice work Thomas! Let us link up so that we can see how we can work together. Raphael Otakwa, University of Nairobi, Kenya.

  • LuapLeiht1

    Does the 7.6 cents per kWh include the cost to build all of the natural gas plants necessary to provide base load when the sun doesn’t shine and the wind doesn’t blow?

    Also, with new production techniques, natural gas just hit a ten year low in price today. I’m not sure I buy the argument that it is going to be rising in cost by 2030. 2100, maybe.

    • Bob_Wallace

      What natural gas plants would that be? We’ve apparently got what we need – gas, hydro, and nuclear.

      “(Dr. Alexander MacDonald, Director of the Earth System Research Lab at the) U.S. National Oceanic and Atmospheric Administration (NOAA) was in Vancouver on Friday for the American Association for the Advancement of Science’s annual convention and mentioned in a talk there that clean, renewable energy (not even including hydroelectric) could cheaply supply 48 states of the continental U.S. with 70% of its electricity demand by 2030. The other 30% would be half from fossil fuels and half from nuclear and hydro.

      “NOAA embarked on the renewables project three years ago, collating 16 billion pieces of weather data derived from satellite observations and airplane observations and weather station reports,” Scott Simpson of the Vancouver Sun writes.

      “Then it designed a program to filter the information to remove unlikely venues for wind or solar power arrays – such as national parks and urban areas – and came up with a map showing robust wind resources in the middle of the continent and decent ones in the northeast Atlantic states, as well as strong solar production areas in the desert southwest.”

      But here’s where the NOAA researchers stepped beyond the good to the great, research-wise: they balanced potential power production and electricity demand to determine, how, where, when, and to what extent clean energy could produce the electricity we need. The end result — 70% of electricity demand….”

      http://www.scientificamerican.com/article.cfm?id=clean-energy-could-supply-us-with-7-2012-02

      16 billion pieces of data. “(H)ow, where, when, and to what extent”.

      70% from wind and solar, 15% fossil (natural gas), 7.5% nuclear, 7.5% hydro.

      We’ve already got (as of 2009) 23.4% natural gas, 20.3% nuclear, 6.9% hydro. Since 2009 we’ve built more NG and more hydro.

      It’s quite possible that we don’t have the right mix on each of the three grids. It’s also obvious that there’s no storage in the mix and we’re starting to install more storage.

      It’s kind of obvious we don’t have a need to build a lot of NG generation. Perhaps re-position some or string some wire.

      • LuapLeiht1

        So if I understand you correctly, you are citing NOAA – an organization known primarily for the accuracy of weather forecasts, to project out our energy consumption patterns?

        I will take their predictions on our future energy portfolio with a pound of salt, thank you.

        • Bob_Wallace

          True – weather is hard to predict more than a couple days into the future.

          That said, what does the ability of anyone to predict the weather have to do with the process of collecting and analyzing huge amounts of wind/solar/electricity demand data?

          Or are you just trying to muddy the water in the service of the fossil fuel industry?

          • LuapLeiht1

            LOL…I’m not in the “service of the fossil fuel industry.”

            I’m merely trying to point out that predictions made by a group of people with a spotty forecasting record in their own field should not be taken at face value when they make projections into another unrelated field.

            I’m sorry if my skepticism (on of the true traits of a good scientist) offends you.

          • Bob_Wallace

            Sorry, you don’t know what scientific skepticism is.

            You’re practicing the “I’ve got my fingers in my ears, I can’t hear the facts, la-la-la” denier form of skepticism.

            Clearly you have no idea as to the quality of work that is done at NOAA.

          • http://cleantechnica.com/ Zachary Shahan

            Spotty record?

            NOAA has an excellent record and the report cited is a tremendous service to a field slightly beyond its normal jurisdiction.

          • LuapLeiht1

            I never said NOAA did bad work. I merely said that their predicitive abilities were nothing to brag about.

            However, since NOAA seems to be branching out of their core competency, perhaps they can give us some stock market tips while they’re at it.

    • ThomasGerke

      The 7.6 cents per kWh is the price of electricity from the renewable energy mix that will provide approximatly 50-60% of the electricity demand by 2030.

      The remaining “gap filling” conventional energy mix will cost approximatly 9 ct per kWh.

      Production costs of electricity always include a mixture of return on investment, fuel costs & a profit margin.
      So the answer to your question is yes, it does include the the installation cost for new gas power stations.

      On your second paragraph:
      Wind is propably still cheaper as an addition to gas, because the investment costs per MW aren’t worlds appart and it got no fuel costs, where as fuel cost make up a large percentage of the per kWh costs when burning gas.
      Solar is heading into unmatchable territory for end customer useage. Also a great addition to gas.

      But for a community is might still be more economical to use 100% renewables, since not all communities have gas… For a community it’s more economocial to buy 100% of their energy from within their community, even if it’s abit more expensive… the community / regional economy prospers, which lifts the regional quality of life. (Local Value Creation)

      • LuapLeiht1

        Wind may be cheaper han natural gas, although I doubt that at pricing under $2 MMBTU.

        However, your assessment of wind assumes that is is always blowing. When it is not, you must have a base power source to back up the wind turbine or suffer blackouts / brownouts.

        As for your assertion that not all communities have natural gas, please point out a major city in the United States that does not have a gas pipeline running through it. Many homes do not have gas, but almost every community does.

        • ThomasGerke

          You are mistaken, my assessment was that wind is cheaper when ever the wind blows, which is quite often the case.

          I didn’t say that not all communities of the US were connected to the grid. But I said that not all communtities (actually I would assume the majority) have their own gas-field in their area.

          The wonderful thing about decentralized renewables is, that they can operate everywhere… without having to drill, paying grid service charges and fuel costs.

          Traditionally energy costs are a drain on regional economies… that means that a certain percentage of the local producivity (3-10%) leaves the community in order to fund essential energy needs.

          With renewables a community is able to keep that money in the local econonmy. Harvest wind, produce heat, fuel & power from biomass and use small hydro / solar.

          Buy energy from your neighbour and he will have a job and be able to buy stuff in your store & pay taxes for schools, roads and other public infrastructure. => Prosperity by local value creation.

          Buy energy from a distant supplier and your local economy has no benefits at all. You might get the energy a few % cheaper…. but everyone in your region has to offset the capital outflow somehow in order to increase the prosperity of the region.

          • LuapLeiht1

            “You are mistaken, my assessment was that wind is cheaper when ever the wind blows, which is quite often the case.”

            Question:

            Where does your electricity come from when the wind is not blowing?

            Answer:

            From a base power source (coal, natural gas, nuclear, or hydro).

            Wind isn’t cheaper if you have to build base power stations as “backup” when the wind isn’t blowing. The alternative is blackouts / brownouts.

            The sporatic nature of wind power also plays havoc with forecasting needs on the grid. Here in Texas, the nation’s leading wind producer, ERCOT has a constant struggle keeping the grid in balance as wind power expands.

          • Bob_Wallace

            Your answer is flawed.

            Dispatchable generation, storage, and dispatchable load are the ways we integrate renewables into the grid.

            ERCOT is doing quite well incorporating wind into their grid. And all that great Texas wind is bringing down the cost of electricity.

          • ThomasGerke

            Why do you go from “Adding ONE renewable energy source to the local energy mix” to “You can’t build an entire energy system only with wind!”
            Nobody claimed that that’s a viable solution.

            If you produce 25% of your electricity from Wind at 4ct per kWh and buy 75% of your electricity from the grid for 9ct per kWh, your electricity costs are 7,75 ct per kWh.

            If you took part in building that wind turbine, you basicly pay yourself for getting 25% of your electricity.

            You can also combine a windturbine with a local biomass plant… from argricultural waste or waste wood. As a combined heat & power station, that plant would also generate heat (a big chunk of our modern energy consumption).

            ADDITION:
            The powergrid has trouble handling wind, because it’s outdated and designed for an aging fleet of conventional & centralized power plants.

            The energy industry used to say that the grid would collapse if 3 GW of solar were installed in Germany… now we got more than 25GW and everything works superbly… because when it’s produced close to consumers, most of the electricity is being used locally before it enters the transmission grid. Addapting & expanding the local grid to share more of the locally generated electricity is possible and cheaper than huge transmission grid expansions.

    • David Fuchs

      You see things as static. While natural gas prices are falling due to production, there is a current lower limit of 4 cents a kwh. The lower limit is due to the cost of delivery, drilling, etc. No new technologies are on the horizon that will bring that price down. 

      On the horizon for solar PV are more efficient cells. 
      http://upload.wikimedia.org/wikipedia/commons/4/42/Efficiency_chart_rev_05-2012.png  Which will lower the cost of solar. 

      For wind there are larger windmills and ocean based both of which will reduce the cost per kwh further. 

      10-12 years in the future we have nanotechnology. At which time the cost of solar will fall rapidly and so will the cost of energy storage. 

      By 2030 the entire fossil fuel industry will be on its death bed as new technologies make the old way of generating energy obsolete. 

      • http://cleantechnica.com/ Zachary Shahan

        Very well said.

        I’m also quite skeptical nat gas can stay so cheap for so long.

  • Ross

    Sounds like a conservative projection. It will probably turn out better than that. By 2030 politicians of all persuasions will probably be claiming they always supported the conversion to renewables.

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