100% Renewables Could Be Closer Than We Think

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This article was originally published on RenewEconomy (image added).

Solar panel, wind turbine & globe via Shutterstock
Solar panel, wind turbine & globe via Shutterstock

The stunning set of data, cost profiles and market analysis produced in the first few weeks of calendar 2013 have confirmed what many had long suspected – that the global energy markets are changing faster than anyone had thought possible.

The implications for the incumbent energy industry – be they generators, network operators or retailers – couldn’t be more significant. The business models that supported the ageing infrastructure are broken, and if they can’t adapt to the new environment, they may soon be out of business. The idea of a rapid change to a largely renewable energy grid no longer seems aspirational, it could be inevitable.

Consider what we have learned this month:

– The price of wind energy (and in some isolated cases solar PV), is already cheaper than coal and gas in Australia. This gap is likely to widen considerably in the coming decade.

–  By the time new baseload capacity is required in 10 years time, other technologies, including solar thermal with storage, and concentrated solar PV, will also be cheaper than coal and gas. Marine energy and geothermal could be close to parity.

–  But not only do we have “grid parity” at the utility level, we also have socket parity, which means that homeowners and businesses can lower their cost of electricity by installing solar panels on their roof.

–  The growing impact of large scale renewables, the self consumption market driven by rooftop solar and battery storage, and the impact of energy efficiency schemes, is reshaping the profile of the energy market and the dynamics of the industry. Sometimes in the most dramatic way. Coal and gas fired generators are getting priced out of the market.

As investment bank UBS recently noted, we are facing a “solar revolution” in the energy industry, and another is on the way with battery storage. As we suggested last year, the change is so profound that existing business models appear broken. According to Macquarie Bank, the German energy model is already “kaput”.

As we have seen in Australia, the increase in renewables is pushing down wholesale electricity prices, forcing the closure or mothballing of 3,000 MW of fossil fuel capacity. In Germany, the closure rate is so rapid that the electricity authority has had to step in to slow them down.

The more retailers and network operators seek to recoup their investment in the face of lower demand, the more customers will be tempted to look after their own energy needs. Even halting all subsidies for rooftop solar will not stop it, said Macquarie. “The ever-increasing (grid) prices for domestic and commercial customers as well as rapid solar cost declines have brought on the advent of grid parity for German roofs. Thus, solar installations could continue at a torrid pace,” it notes. The same applies for Australia.

So what does this mean?

As Michael Liebrich, the head of Bloomberg New Energy Finance, suggested: “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.”

Consider the situation in Australia. The utilities and the energy market operator have told us that no new baseload is needed until 2020. Now we know that when new capacity is required, technologies such as large-scale solar PV and solar thermal with storage (dubbed as better than baseload) will likely be cheaper, along with wind.

Coal-fired power stations will not get built, for reputational and economic reasons, and gas – the much touted transition fuel – may also not get a look in. “Costs are just falling so quickly and the cost of fossil fuel are so much higher than public perception,” said Kobad Bhavnagri, head of clean energy research for BNEF  in Australia. ”We could leapfrog gas as transition fuel.”

Bhavnagri said that by 2020 the “world could look quite different.” The market operator and system will be more experienced and adept at handling intermittency. “The case for gas is not as strong as people assumed a few years ago.”

The upshot of that analysis is that the plants we will be building in the 2020s will be – because they are the cheapest options – large-scale solar with storage and other dispatchable renewables. The economic case for existing fossil fuel generators will be further undermined.

This explains why the fossil fuel industry in Germany, and in Australia, have been trying to halt the expanse of renewables. The primary policy goal of generators and fossil fuel industry for the past decade or more has been one of delay – to push back the build up of renewables long enough to extract maximum value from their existing assets, and even to create space so they can build more assets. The extractive industries have the same, simple plan.

All the major Australian utilities made clear in their submissions to the Climate Change Commission that allowing the renewable energy target to stand – and more wind farms and large-scale solar PV to be built – would reduce the profits of their generators, quite dramatically. Yet diluting that target would allow them to build more gas-fired generation.

This is also why the utilities have also argued against the Clean Energy Finance Corporation, because it is designed to help usher in those technologies such as solar thermal and ocean energy that will be competitive in a decade’s time. But they can’t be competitive if none are built, and installation and manufacturing costs are reduced.

Many European markets are now at critical junctures with high penetration of wind and solar. This includes Germany, Italy, Denmark, Spain and Portugal. Australia, should it maintain its current renewable energy target, will follow soon enough. Germany, while reducing subsidies, is still increasing its renewables targets – 40 per cent by 2020 and 80 per cent by 2030.

Its biggest challenge is to figure out how to redefine the market rules so that it can provide enough economic incentive to prevent too many closures of fossil fuel plants, and to encourage existing gas to stay open rather than coal. It needs these gas plants to assist with the transition.

But it is instructive to see how the big utilities are responding. In Germany, also in an election year, they are faced with a government which is absolutely committed to its targets, and an opposition that will likely accelerate it. In Australia, the utilities appear to have the alternative government singing from its own song book, and still stuck to the outdated notion that renewables are expensive and intermittent, and therefore of little use.

As frustrating as the position of the utilities and the network operators is, they will argue that they are acting in the interests of shareholders. But given the analysis produced by the likes of UBS, HSBC, and Macquarie in the past few weeks, long-term investors such as asset managers may well be wondering how these executives are positioning their company for the long-term future, rather than short-term returns.

Again, the situation in Germany is instructive. Its biggest generation company, E.ON, has fought ferociously against the government’s nuclear phase-out and the pace of the rollout of renewables. Now it concedes its gambit is lost, and so its strategy for the future is simply to transform itself towards a generator focusing on distributed energy and renewables as quickly as it can.

As Rob Passey, from the UNSW, commented on our article on the UBS report, the network operators would be best served by embracing the new technologies rather than fighting against them. “It seems that the only way network operators can remain solvent over the longer term is for them to actively participate in this market themselves,” he said.

The sooner all Australian generators and utilities come to the same conclusion, the better for everyone – shareholders, consumers, and citizens. The question should not be how quickly we can move to 100 per cent renewables, but to ensure we don’t hang on to antiquated policies and business practices designed only to slow it down.

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Giles Parkinson

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.

Giles Parkinson has 596 posts and counting. See all posts by Giles Parkinson

23 thoughts on “100% Renewables Could Be Closer Than We Think

  • Sorry, but the current German government is not really committed to its target.
    The German minister of economic affairs is not only trying to stop the FIT-program and cut FIT even on already existing renewable power plants, he is even torpedoing EU-measures to increase CO2-price (which is currently only at €5 /ton).

    • It will be interesting to see if it can be stopped. My thoughts on the matter aline with the author, solar simply cannot be stopped.

      Governments just cannot or will not plan for exponential trends. Even a contingency plan would be useful. Things in the 21st century do not adhere to nice and neat linear curves, they look like nothing to worry about until they have all your market share and you’re filing for bankruptcy.

      In the same way we went from main frame computers to personal computers, we’ll go from

    • i think it’s more accurate to say that there is an ongoing battle within the current German government between pro-fossil fuel and pro-renewable members.

      At the moment it seems that fossil fuel interests are getting hurt in Germany. If that’s true I would expect them to be using whatever power they have in the government to push back against renewables.

      I’ve seen a prediction that the next government should be more renewable-oriented.

      Perhaps one of our German commenters could flesh this out a bit.

    • The current German government leans conservative — pretty much always on the side of fossil fuels and nukes. The coming election is likely to change that. The conservatives at the head of government rolled back renewable support a bit, but they couldn’t do so much because the public heavily supports those policies: http://cleantechnica.com/2013/02/10/germany-solar-subsidies-poll/

  • Great article…one caveat. It assumes that governments and corporations have any sane, logical and honest people making decisions.

  • As stated, this article is highly optimistic…

  • Thanks for your great story.

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    This idea truth 100% the problem is I do not have the money to make I need all the support

  • Intended to find solutions Technology and Alternative Energy for the energy crisis and aims to develop new ideas with impact on Economics and the Environment. Target – green environmental forever needed new initiatives 100% green Details at http://www.trongdong.weebly.com

    This idea truth 100% the problem is I do not

  • I think the optimism of the author may stem from the chance of a cascade effect. When generators who use fossil fuels realize they can’t remain competitive they will turn their attention to renewables. After one company changes direction, how long do you think it will take other large corp.s to follow suit; all in the name of remaining competitive. This is one of the positive aspects of a free market.

  • Bicycles are, per person kilometer, far cheaper than cars. So what? They can’t do the same job. And with renewables there is a roll out speed problem, a grid problem, a land use problem and a storage problem all bundled in. Germany produces electricity for 468 g-co2/kwh. France has been at < 80 g-co2/kwh for over two decades. How much more obvious can the dismal failure of renewables to scale get?

    • Henry Ford sold few cars in his first couple of years. Slow to scale.

      Obviously cars failed.

      Renewables roll out much faster than nuclear or fossil fuel generation.

      Grid problems are grid problems. That’s being worked on. Renewables don’t create new or unique problems for the grid. There will be need for new transmission for some wind farms, that’s about it.

      Land use is not a problem. Take a look at the land used for coal and uranium mining.

      Storage is an issue, not a problem. We’ll have to make a choice between installing lots of pump-up hydro or something better. We’ve got some time to see if something better develops before we have to get serious about storage.

      • Exactly right!

    • Come on, Geoff. Renewables have many advantages over fossil fuels and nukes that help the grid and society. There’s a reason the leading economies of the world are increasingly building their energy systems around them. (Actually, there are numerous reason.)

  • Assertions in this article are just that. Except for off-grid applications, I have not heard of a single wind or solar system that is even close to being economically competitive with say a natural gas fired electric power plant unless huge govt subsidies are ignored. Storage for intermittent power is indeed a hugely expensive endeavor and cannot just be dismissed with a wave of the tongue as it has in some of the other comments on this article. If a solar system’s power generation exactly coincides with local peak power needs for air conditioning and a “peak” gas fired plant can be avoided, then solar could be near to being competitive because a peak-only plant does not make good use of its invested capital. But such situations are fairly rare.

    • Well, let’s give you some data. Take a look at the LCOE bar graphs on this page. http://en.openei.org/apps/TCDB/

      Hover your cursor over the bar for onshore wind and you’ll see that the minimum price is $0.04/kWh. Then hover over the natural gas bar and you’ll see that the maximum is $0.07/kWh. Those are non-subsidized costs. Clearly some wind turbines are producing electricity for less cost than are some natural gas turbines.

      And notice that median prices are only one cent apart. As you do, consider the fact that natural gas prices are on track to increase in the near future.

      Pump-up hydro is not massively expensive.

      You’re not grasping what happens to peak hour pricing when solar is brought on line. Give this a read… http://s.tt/15C72

      • This reference is interesting, but I suspect something is being left out. Variable costs of Solar or Wind is certainly less than variable costs of gas fired plants once the construction capital costs are spent. This could make time of day “spot” pricing of renewable power more competitive if this is how power pricing is regulated by the govt agencies.

        But unless the renewable power includes storage and provides 24/7 power, the “gas” fired plants are required to keep turning to take up the slack if the wind dies or clouds come over. So the gas plants may be forced to sell at a loss during some times of the day under such a scheme. In such a case the graphs are not indicative of real costs.

        In Portland OR, where I live, there is lots of hydro and vast numbers of new wind farms nearby. However the hydro has not meshed well as a buffer for the wind farms…partly because of environmental regulations on the Columbia River that often demands flow through the turbines to keep salmon healthy. Gas fired “peaker” plants are now being constructed to accommodate the potential shortfall of the wind farms…as the State requires the utilities to buy the wind power that is generated…and at fairly high prices.

        • You questioned whether any wind farms are producing electricity anywhere as cheap as natural gas. I gave you evidence that they are.

          Gas plants are not required to keep running to back up wind. If wind is the cheapest supplier then gas plants are shut off.

          Yes, the wind does not blow 24/365 and when it isn’t blowing we need other sources of electricity. Coal and nuclear plants do not run 24/365. Many hydro facilities are not capable of producing full output levels 24/365.

          LCOE alone does not give one the full cost of running a grid. It is a measurement of what it costs to produce electricity from a given source. Putting the various pieces together in a reliable fashion and for the lowest possible price is a different consideration.

          If you are concerned about the overall cost of running a grid and want to consider the cost of filling in around wind (and solar) please make sure you include the cost of treating the health damages caused by coal and the cost of climate change caused by burning coal and natural gas.

  • For homeowners Solar Pannels are still to expensive and are they still made overseas?

    • Solar panels are made in a number of countries.

      Many places solar panels save homeowners money. Not everywhere, but the number of places where solar is affordable is rapidly growing.

      In the sunny parts of the US where the price of electricity is close to or higher than the national average solar panels pay for themselves in a few years and then return decades of free electricity.

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