Wind, Solar, & Batteries Continue To Squeeze Out Fossil Fuels, Finds BNEF

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A new report from Bloomberg New Energy Finance shows that continued cost reductions for renewable energy sources like wind and solar and new technologies like batteries are continuing to squeeze out the traditional role that has been played by fossil fuel energy sources.

Bloomberg New Energy Finance (BNEF) published its most recent analysis of the levelized cost of electricity (LCoE) for all leading energy technologies this week, which showed that in the first half of 2018, the benchmark global LCoE for onshore wind fell to $55 per megawatt-hour (MWh), down 18% from the first six months of 2017 and down 38% over the 9 years that BNEF has been tracking LCoEs. Similarly, the global LCoE for solar PV without tracking systems fell to $70/MWh, also down 18% and down 77% over BNEF’s 9 year tracking period.

The LCoE for offshore wind technology fell to $118/MWh, down 5%, but maybe most importantly was that since 2010 the costs of lithium-ion batteries fell by 79% and wrought merry-havoc with fossil fuel technologies, helping to undermine fossil fuels traditional role in providing the supply of bulk generation, dispatchable generation, and flexibility.

“Our team has looked closely at the impact of the 79% decrease seen in lithium-ion battery costs since 2010 on the economics of this storage technology in different parts of the electricity system,” explained Elena Giannakopoulou, head of energy economics at BNEF. “The conclusions are chilling for the fossil fuel sector.

“Some existing coal and gas power stations, with sunk capital costs, will continue to have a role for many years, doing a combination of bulk generation and balancing, as wind and solar penetration increase. But the economic case for building new coal and gas capacity is crumbling, as batteries start to encroach on the flexibility and peaking revenues enjoyed by fossil fuel plants.”

Specifically, fossil fuels’ role as a bulk power provider is being supplanted by the tremendous cost reductions for wind and solar, thanks in part to falling capital costs, improving efficiency, and the increasing number of competitive auctions around the world. Eating up fossil fuels’ role as a provider of dispatchable power is battery technology paired with renewable energy sources like wind and solar, smoothing their otherwise intermittent electricity production.

Importantly, the average global LCoE prices do not highlight the regional variations, such as the incredibly low LCoE for onshore wind in India, Brazil, Sweden, and Australia, and similarly low LCoE’s for solar PV in Chile, India, Australia, and Jordan.

For example, as explained by BNEF, India’s benchmark LCoE for onshore wind are down to just $39/MWh, down 46% over 2016’s figure, and solar PV is down at $41, down by 45%. Not only are these renewable energy LCoEs representative of continued cost reductions, but it also highlights the economically competitive position renewables have finally reached. Again, looking at India, the LCoE for coal is $68/MWh, while combined-cycle gas is $93/MWh.

When you add in battery storage to India’s LCoE costs for wind and solar, things shift around a little. Wind-plus-battery has an LCoE of between $34/MWh and $208/MWh, while solar-plus-battery has a LCoE of between $47/MWh and $308/MWh.

“Competitive auctions for new renewable energy capacity have forced developers, equipment providers and financiers to bear down on all the different costs of establishing wind and solar projects,” added Seb Henbest, head of Europe, Middle East and Africa for BNEF. “Thanks to this and to progressively more efficient technology, we are seeing record-low prices being set for wind and solar, and then those records being broken again and again on a regular basis. This is having a powerful effect – it is changing perceptions.”

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Joshua S Hill

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