Credit Suisse on December 20 released a report with some quite bullish projections regarding renewable energy growth and generation in the United States, which someone in the solar industry kindly passed on to me. Here’s the short summary:
Our take: We see an opportunity for renewable energy to take an increasing share of total US power generation, coming in response to state Renewable Portfolio Standards (RPS) and propelled by more competitive costs against conventional generation. We can see the growth in renewables being transformative against conventional expectations with renewables meeting the vast majority of future power demand growth, weighing on market clearing power prices in competitive power markets, appreciably slowing the rate of demand growth for natural gas from the power sector, and requiring significant investment in new renewables.
What percentage of future growth does Credit Suisse say might come from renewables? About 85%.
Renewables will meet most of US demand growth. We estimate that ~85% of future demand growth for power through 2025 (including the impact of coal plant retirements) could be met by renewable generation with compliance to the existing 30 mandatory and 8 voluntary RPS programs. From this we would see over 100 GW of new renewable capacity additions with wind and solar market share more than doubling from 2012 to 2025.
Other key points are that falling wind and solar costs make them competitive with natural gas, even ignoring externalities. As a result, Credit Suisse has cut its natural gas projections considerably. “We estimate renewables slowing the rate of natural gas demand growth from power generation to <0.5 bcf/d through 2020 versus our prior estimate of 1.0-1.2 bcf/d even when taking into account planned coal plant shutdowns and assumed nuclear plant retirements.”
I think this report and the revisions implicitly highlight something very interesting that is going on in the energy industry. Renewable energy costs are primarily based on the cost of the technologies themselves, while fossil fuel costs are largely based on the fuel sources. As renewable energy grows, the technology costs come down. In the case of fossil fuels, increasing demand brings the price of these finite fuels up. Forecasts should take this into account, but they routinely seem to underestimate renewable technology cost drops, and thus also underestimate renewable energy growth. Credit Suisse, Deutsche Bank, and others that are a bit better at these projections are quickly shifting their forecasts to catch up with the renewable energy revolution we’ve been seeing. This new report from Credit Suisse analysts is certainly one of the most positive I’ve seen. The title of the first section says it all: “Renewables Are Economic and Disruptive to Conventional Markets.”
Credit Suisse analysts see Renewable Energy Standards (RES) as driving much of the coming growth, but they aren’t shy about saying (repeatedly) that renewables are also now cost competitive, and that technology improvements just keep advancing their prospects.
“We think old-line arguments against renewables – too expensive, too intermittent, too remote – will continue to fade, allowing a resource base that is underappreciated in the market but is positioned to have a broad impact on power and energy markets.”
The report projects that wind power, which is exceptionally cheap, will account for about 80% of the renewable energy growth, while solar will account for the other 20% or so. It sees a doubling of installed US wind power between 2012 and 2020, while it sees solar increasing 11 times over — starting from a much smaller installed capacity, of course. Together, solar and wind’s combined market share is projected to grow from ~4% to ~9%. By 2025, Credit Suisse projects that renewables will account for ~12% of US electricity generation.
Key drivers of the increasing competitiveness from wind and solar are a bit different in each of the industries. Wind farms have become a lot more effective at capturing energy from the wind and turning it into electricity. “Wind utilization rates have increased by 15-20 percentage points, with new machines in the same wind resource yielding 50-55% utilization rates from 30-35% in 2007 due to improvements in turbine design, taller towers / bigger blades, and better wind modeling. Higher utilization has led to dramatic drops in levelized costs with many new projects clearing at ~$30/MWh (Exhibit 5-Exhibit 6), in effect ‘creating’ natural gas under 20 year PPAs at less than $3/MMBtu.”
In the case of solar, it’s a story that CleanTechnica readers should be very familiar with — the price of solar technology has fallen off a cliff. “Solar capital costs have continued to bend the cost curve with utility scale PV today at ~$2000 per KW of capacity from $3250 in 2010, lowering levelized costs for utility scale solar to $65-80/MWh from well over $100/MWh and bringing solar to price parity with newbuild natural gas peakers.” Efficiency improvements have also helped solar on this front.
Yes, solar costs came down due to massive oversupply of polysilicon, solar cells, and solar panels. However, as demand has come to match supply again, costs have remained down. In fact, most solar market research firms project that the costs will keep climbing down in the coming few to several years. Furthermore, many big efforts to bring down the soft costs of solar are also now in motion, as these are the costs that make US solar much more expensive than German solar and are now taking up a huge chunk of the solar price pie.
As we’ve written and read numerous times in the past year, all of this also means some hurt for utilities and fossil fuel generators. Renewables are expected to result in lower power prices than were previously projected, while fossil fuel plants will not be able to sell as much of their (more expensive) electricity to the grid, cutting into their profits.
Here’s a snippet regarding the power prices: “Using our bottom-up power market models, the risks we see to power markets are rooted in a slower market recovery as more (and bottom of the stack) generation is added leading to a fundamental step down in power prices $1-2/MWh or ~5% relative to a scenario without significant renewables growth, as the overall supply curve is ‘pushed to the right’ with lower cost renewables added.”
And here’s one regarding the threat to fossil fuel generators: “while generation output will be lower, the operating costs are broadly fixed meaning that coal and natural gas plants will produce less revenues without a change in cost structure, leading to some minor degradation in EPS.”
The entire report is very interesting, with many details that are surely useful to investors and industry insiders. But the overall trend is clear as a sunny day: the future is renewables.
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