When it comes to global electricity generation, coal is still king – but not for long.
Fast-changing economics mean renewables worldwide will represent 34% of all installed capacity by 2030, according to “World Energy Perspective: Cost of Energy Technologies,” a report from the World Energy Council (WEC) and Bloomberg New Energy Finance (BNEF).
The report finds many clean energy technologies are already cost competitive with fossil fuels and only getting cheaper, echoing another analysis that found US wind and solar costs fell 50% since 2008. As a result, fossil fuel’s slice of the world energy pie is projected to fall fast, from 67% in 2012 to 40%-45% in 2030.
Falling Renewable LCOE Powers Clean Energy Surge
Vast differences in the cost of building and generating power exist across the globe, but one trend is clear – the levelized cost of electricity (LCOE) continues to fall for mature renewable energy technologies, placing them close to grid parity with fossil fuels. In addition, the cost of producing power from renewables fall continue at a rate related to the level of usage, a trend known as the “experience curve.”
“Our study finds that although fossil fuels continue to dominate, renewable energy and the investment appetite for them are growing,” said Guy Turner, Chief Economist at BNEF. “With wider deployment the price of renewables will fall, reducing the risk for investors, and we expect to see greater uptake over the years.”
The WEC report uses several cost metrics exist to evaluate power generation including capital expenditures, operating expenditures, and capacity factor, but LCOE stands as arguably the most important indicator of renewable energy’s value because it’s the only one that evaluates the total lifecycle costs of producing a megawatt hour (MWh) of power.
LCOE is best explained as the price a project must earn per MWh in order to break even on investment and considers cash flow timing, development and construction, long-term debt, and tax implications to equally evaluate all energy technologies on an equal basis in terms of their actual costs. But most importantly, LCOE underlines the ascendance of renewable energy across the world – especially wind and solar.
Wind Power Gusts Ahead
Wind power has already become the largest non-hydro renewable electricity source and is projected to more than triple from 5% of global installed capacity in 2012 to 17% by 2030, breezing past large hydropower. From 2000-2010 global onshore and offshore wind capacity increased 30% per year, reaching 200GW installed in 2010.
Onshore wind’s LCOE has fallen 18% since 2009 on the strength of cheaper construction costs and higher capacity factors. Turbine costs have fallen nearly 30% since 2008, outpacing the traditional experience curve. The LCOE for onshore wind is cheapest in India and China, running between $47-$113 and making well-sited wind farms in these countries among the cheapest in the world – an incredibly important factor considering their surging demand for power is currently being met by coal.
The LCOE picture isn’t as clearly defined for offshore wind, as 95% of the world’s 4GW installed offshore wind capacity is located in European waters. By 2020 installed capacity growth in Asia will surge, offsetting Europe’s dominance with 40% of all installed annual capacity – China alone will have 30% of all new capacity. As more offshore wind comes online in different markets, LCOE will become clearer.
Solar’s Remarkable Shine
But if wind’s LCOE drop has been steady, solar energy’s has been meteoric. The WEC reports feed-in tariffs and plummeting photovoltaic module prices make solar competitive with most forms of power generation – in some markets with expensive power, like Germany, businesses with installed solar now find using their generated power more profitable than selling it to the grid.
As a result, solar power’s worldwide capacity will absolutely boom, growing from 2% of installed capacity in 2012 to 16% by 2030. China and Japan will be biggest beneficiary of solar’s rise, with China set to exceed 50GW installed solar by 2020.
The WEC’s forecast for solar power is incredible, but even this outlook is underestimates solar’s clean energy potential, because it only includes projects above 1 megawatt in capacity – completely ignoring the spread of small-scale rooftop solar and the rise of distributed generation.
Fossil Fuel’s Achilles Heel: Operational Costs
In spite of falling renewable costs, fossil fuel generation is still cheaper in most regards, except for one – the price of operation. The WEC notes that once renewables are built and online, their costs are mainly marginal operational and maintenance expenses. Compare that to fossil fuels, whose costs are volatile and subject to change from factors like commodity price swings and external costs like carbon pricing and pollution.
This trend is most clearly seen in developed nations like Western Europe, America, and Australia, where the WEC says the potential for significant amounts of new coal generation to come online is low. Today, developing nations buck this trend and coal is a growing generation source in Brazil, China, and India. In fact low capital costs make China the cheapest country to generate power from coal, less than half the LCOE in Europe or the US.
But the tide is starting to turn, evidenced by growing concerns about air pollution in China and the development of carbon markets in many of the world’s developing economies where fossil fuels have dominated generation.
Grid Parity For Renewables Fast Approaching
Put it all together, and it’s clear to see global energy economics are changing fast. While coal still dominates global electricity production, renewables are catching up with net investment growing seven-fold from 2004-2011, outpacing fossil fuels for the second year in a row in 2012. And as more renewables come online, their costs continue to fall faster and faster from larger economies of scale.
“The cost of most technologies, and most dramatically that of solar PV, is coming down with production scale-up in many areas of the world,” said Dr. Christoph Frei, World Energy Council Secretary General. “With such growth, grid parity will become reality in the coming years.”