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Published on September 28th, 2013 | by Giles Parkinson

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$5.7 Trillion Worth of Renewables With No Added Grid Costs

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September 28th, 2013 by
 

Originally published on RenewEconomy

Analysts at Citi have produced a detailed report which suggests another 900 gigawatts of solar installations, and another 1,500GW of wind farms could be installed around the world with little added cost to electricity grids. This amounts to an investment opportunity of $US5.7 trillion – and it only relates to those investments that can be achieved without much added expense to existing infrastructure.

The estimate is based on Citi’s assessment that most electricity markets could – on average – integrate 20 per cent of wind generation with little problem, and around 10 per cent of solar – although some generation assets are likely to find themselves stranded because they are being priced out of the market.

The wind penetration assessment, by Citi’s own admission, is conservative, because many studies say 30 per cent is possible and countries such as Denmark have already gone well above that. But Citi says it is a global average based on the fact that many developing countries may struggle to integrate more without added expense.

It cites coal and nuclear as being victims of increased wind generation, because it tends to eat into baseload demand. It says solar is most likely to sideline peaking gas generators because it is the most cost-effective way to address peak demand. Gas is either already too expensive in many countries, and even in the areas like the US where gas is now cheap, utilities are investing in solar anyway because they are wary of the risk of future gas price rises, and coal and nuclear cannot meet that demand.

To put Citi’s forecast is some context, there is currently just more than 100GW of solar installed in the world, and around 282GW of wind energy. Bloomberg New Energy Finance today issued a new forecast saying it expects about 37MW of solar to be installed this year, and  about 36GW of wind.

It also comes as a new report from the National Energy Renewable Laboratory in the US releases a study that says 33 per cent wind and solar penetration in the western grid of the US would save $7.5 billion in fuel costs, but would add little in added costs of “spinning reserve” or “cycling – dismissing one of the major objections of wind energy opponents, and lending some support to Citi’s contention that this amount of variable renewables can be installed with little added cost. You can read Eric Wesoff’s excellent report on that analysis here.

Citi notes that its 30 per cent assessment is not a blanket rule for all markets, because of different geographies and weather conditions. For instance, it notes that solar could account easily for 10 per cent of output for countries closer to the equator with better solar resources, but just 5 per cent for countries where solar produces little in winter. (Many analysts would content that solar could do a lot more, and will).

Citi cites Germany as an example of a country that might have gone “too far” too quickly, noting that it will likely have to change the structure of its markets to ensure that some form of “capacity” payments are made to ensure that enough fossil fuel generators remain in production.

The biggest markets for solar and wind energy investment are China and the US, which is natural considering they have the biggest economies and biggest electricity grids, with greater capacity to absorb variable renewables.

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Using 2013 $ prices, Citi sees a near $1 trillion market in the US (consisting of $US366bn solar and $US560bn wind) and a $US1.5 trillion market in China ($US542bn solar and $US906bn wind).

But it suggests the most interesting regions for growth are areas such as Latin America, Japan and India, which all have “decent sized” electricity demand, a small installation base of renewables and a sizeable opportunity to grow significantly.

Japan in particular is an extremely attractive location for renewables after the country closed most of its nuclear fleet and now is scrambling for affordable energy while it burns imported gas at $16/mmbtu (vs. $3.5 in the US). The country has shown its support for renewables and in particular solar through the implementation of generous feed-in tariffs for renewables generators.

On solar, Citi says Japan and Latin America are the only markets where utility-scale solar is clearly competitive at a wholesale level.

In areas with strong solar resources, such as western US.  the region studies by NREL – it says utility-scale solar will compete with peaking gas – even though gas prices are low in the US. Uilities want to hedge themselves against the risk of volatile fuel prices.

The real game changer is being felt at residential level, where solar is already at socket parity in many nations – meaning it is cheaper than retail prices. It notes that in Australia, households are facing the choice between (a) buying electricity from the socket at a rate of $30ct/kWh or (b) producing solar electricity at a cost of $18.5ct/kWh. “By installing solar panels a household would save $11.5ct for every kWh consumed from solar,” it notes. (We have more on the Australia story here, and see also Warwick Johnston’s latest market update).

As for wind, Citi says onshore wind cost is only attractive as an investment on an unsubsidised basis in Latin America (Brazil), the UK and Canada, although Argentina and Italy will follow suit by 2020.

However, there are secondary reasons why utilities might prefer wind over baseload fuels such as coal and nuclear: “Coal is environmentally questionable, and similar concerns combined with uncertainty over costs and remuneration make nuclear hard to build in many markets.” Citi writes.

“In a meaningful comparison between coal and wind CO2 costs should arguably be included in the analysis. Unfortunately, the economic costs are not captured by current carbon markets and hence these carbon prices do not provide a good indicator for the true economic cost of carbon emissions on the environment.

It says nuclear reactors do not emit any CO2, but pose an investment risk because the cost of generation is very sensitive to discount rates due to the scale of back-end liabilities and the cost of capital, which is pricing in the low visibility of what future costs nuclear might impose on society.

Citi says onshore/offshore wind shows limited seasonal variability and its generation profile is much more similar to baseload generation than solar. “For these reasons we do not consider wind as a peak shaving resource but rather as a substitute to baseload capacity such as coal and nuclear.”

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • NRG4All

    There is one other facet of wind and PV versus Nuclear generation that I’ve never heard addressed. The renewables do not generate any appreciable heat yet nuclear cooling towers obviously do. It’s a nit, but it is helping to warm the atmosphere.

  • Bob_Wallace

    Well, this is going to shake things up…

    “The cost of large-scale solar projects has fallen by one third in the last five years and big solar now competes with wind energy in the solar-rich south-west of the United States, according to new research.

    The study by the Lawrence Berkeley National Laboratory entitled “Utility-Scale Solar 2012: An Empirical Analysis of Project Cost, Performance, and Pricing Trends in the United States” – says the cost of solar is still falling and contracts for some solar projects are being struck as low as $50/MWh (including a 30 per cent federal tax credit).”

    http://reneweconomy.com.au/2013/big-solar-now-competing-with-wind-energy-on-costs-75962

    That’s a penny more than the 2011, 2012 average for wind at $0.04/kWh.

    Tease out the 30% PTC for each and solar is 7.5 cents, wind 5.7 cents.

    Half or less the cost of new nuclear or coal. Squeezing hard on natural gas.

    $5.7 trillion? Likely a low estimate. It’s time to kick fossil fuels to the curb.

    • Bob_Wallace

      Here’s the accompanying graph….

  • Roy Wagner

    Apart from the Typos a good article.
    Globally the situation at present is that Fossil fuels provide over 80% of electricity generation Solar and Wind 4%.
    The demand for Electricity is forecast to double by 2050 if you replace transportation with EV’s as much as possible this additional demand for electricity replacing oil has to be supplied too.
    Current deployment of renewables is providing around 50% of new generation needs
    To significantly reduce the market share of fossil fuels the production and deployment of all renewables needs to increase by about ten times .

    $5.7 Trillion is just the low hanging fruit. http://www.oceanenergy.co

  • Bob_Wallace

    The average lifespan of coal plants in the US is 39 years. That’s also roughly the average lifespan of a nuclear reactor. Now let’s look at the age of our existing generation in the graph below.

    It’s not just whether solar and wind are cheap enough to force existing generation off the grid. It’s also about what we will use to replace existing generation as it wears out.

    Wind, solar and geothermal are cheaper than new coal and new nuclear. We’ve got a lot of replacement ahead of us (tempered by increased efficiency dropping demand).

    It’s now pretty much impossible to build a new coal plant due to the CCS requirement.

    Nuclear is expensive. And one more meltdown could result in massive demands to close all nuclear, investment risk is very high.

    Natural gas, in a combined cycle plant, is not expensive but it is subject to fluctuating gas prices and a potential carbon price.

    There are some very large amounts of investment ahead and it looks to me that wind and solar are going to get the lion’s share. Bring more affordable storage to market and things will get very interesting.

  • exdent11

    Isn’t this year”s projected solar around 37 gigawatts instead of 37 megawatts as stated in paragraph 5 ?

  • Ivor O’Connor

    I often wonder who these analysts are. Do they get their jobs because of their friends. Their family? They obviously have no idea what they are talking about so it becomes a matter of how they are connected in such a way that they are allowed to pontificate freely devoid of reality.

    Here we have some body saying there are lots of good opportunities for PV. I like that and agree. Also that it would not burden the grid. I also like that and agree. Then he goes on to say unsubsidized land based wind is not profitable in the USA. What?! So then I begin to wonder just what his connections are that allow him to spew BS.

    • agelbert

      Well said.

      The pretense of objectivity shows when the “profitability” of some hugely profitable RE technology like wind power is questioned.

      It’s time to repeat over and over to these closet defenders of the fossil fuel status quo that, as far as 100% renewable energy for human civilization, TINA (There Is No Alternative if we want to survive).

      http://www.pic4ever.com/images/gen152.gif

    • JamesWimberley

      Well, US onshore wind is profitable today because it gets the PTC subsidy. Whether it´s ¨economic¨ depends on which fossil fuel subsidies you include; and what regulations you expect the EPA to impose. The draft emission rules on new coal plants are impossible to meet, and new nuclear plants can´t in practice be built either in any reasonable time-frame. It´s unclear what real-world alternatives to wind power utilities actually have.

      The more interesting comparison lies between new wind and old coal plants. The latter are decrepit as well as highly polluting. If the utilities can get away without major refurbishment, they will try to run these dinosaurs as long as possible. But if refurbishment costs are high, or the EPA comes up with tough standards, then wind plus some storage begins to look attractive.

      Citi thinks that onshore wind is economic in Britain without subsidy. The joke is that England is one of the few places in the world you can´t actually build them, as a consequence of strong local planning controls combined with a lack of any tax incentives for local government to approve wind farms. (Google ¨UK single business rate¨.) Scotland is different. Also France, where EDF can steamroller any local opposition.

      • Ivor O’Connor

        I’m not sure if it is profitable because it gets the PTC subsidy. It’s more like icing on the cake. Keep in mind the average price wind power is sold for is 4c/kWh. That is less than NG in many situations. Also keep in mind that there are lots of wind being in the mid west being sold at only 2c/kWh. That is in my mind absurdly low however they have contracts for 30 years at only 2c/kWh.

        Now when you look at a PTC credit of 2c/kWh you could say half their money comes from the subsidies. However after 10 years the 2c/kWh goes away and they are left with 20 more years of only getting 2c/kWh total.

        Now look at coal or nuclear power which is bought at old fashioned prices of 10-30c/kWh. It is mind boggling this Citi financial expert would say non subsidized onshore wind is not competitive! What is really going on here?

        • Bob_Wallace

          If you start with the 4c average 20 year PPA selling price for 2011 and 2012 and then add in 1.15c for the 10 year 2.3 PTC that makes the non-subsidized selling price of wind a bit over 5c/kWh.

          Five cents may not be competitive with paid off hydro, coal and nuclear (from the most efficient reactors). Coal and nuclear have a lot of external costs and historical subsidies, but they aren’t being charged against selling price so they don’t count in the market.

          Take a look at the graph at the bottom. Wind is inside the blue range, but it’s toward the top.

          Where wind is competitive is in new capacity. It beats everything including, possibly, NGCC.

          • Ivor O’Connor

            Interesting graph. I’m assuming the dip in the blue range is NG since paid off hydro, coal, and nuclear would not fluctuate? Why though has the cost of wind fluctuated? Is it as James Wimberly and the Citi analyst says? Could the rise in wind price from 2006 to 2010 be the result of no subsidizing PTC?

          • Bob_Wallace

            IIRC there was a shortage of wind turbines a few years back that drove up prices until other manufacturing came on line.

            Falling NG prices would have made everyone (most everyone) bid lower in order to sell.

    • Bill_Woods

      Remember the kerfuffle last year about extending the PTC? The dire predictions from wind advocates if it weren’t? Not exactly the image of an industry that could survive without subsidies/mandates.

      The DOE reports uncertainty over the PTC led to lower tax equity and debt commitments, effectively turning the “end-of-2013 PC construction deadline into an end-of-2014 commercial operations deadline.” State renewable energy targets have helped offset this federal uncertainty, but have only supported 3-5 GW worth of new additions annually,…

      http://cleantechnica.com/2013/08/06/rollercoaster-ride-continues-for-us-wind-energy-industry-doe-report/

      • Shiggity

        Nuclear takes too long, coal isn’t viable after the new EPA rules, and gas prices could spike up if we start exporting it.

        I just can’t see a scenario in which solar doesn’t dominate everything by 2020.

        • Bob_Wallace

          Wind has a head start and is producing new capacity at a bargain price. Solar should be about the same price as onshore wind by 2020 (or sooner).

          Offshore wind is likely to be a player by 2020. The closeness to the densely populated East Coast and daytime output, even in the less sunny winter, is likely to make it a pretty popular energy source.

          I’m suspecting a wind-solar one-two punch.

          Subsidies? Why not fight for them? Why sit back and let fossil fuels and nuclear get massive public support, making their prices artificially lower and not ask for a bit of the same?

          When fossil fuels and nuclear start standing on their own two feet then we should talk about dropping wind and solar subsidies.

          • Matt

            I am so tired of the two faced subsidies bull s**t. There is NO unsubsidized electric in this country. Lets take coal. Total US electric in 2012 4,054 billion kilowatthours , coal 37% so Coal produced 1500 Billion KWhs. External health care cost were $300-500B (Harvard study), or $0.20-0.33 KWh and people bitch that wind is getting $0.023 KWh. Level playing field my #ss.

      • Ivor O’Connor

        Yes. I remember in 2005 or so going to a meetup with a vestas rep. The rep basically made it sound as if they did not get the tax breaks they would be out of business. They even had paperwork showing how business historically dried up when the tax breaks were not in place. I think it is a game they all play. Whether it is digging for oil, NG, nuclear, whatever. If they don’t get their tax breaks they will go out of business and the world as we know it will end. Horribly end. Beyond your worst nightmares.

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