Economics |Essay

Has renewable energy hit a threshold for ‘abrupt and irreversible change?’

  1. Renewable energy projects represented 55 percent of the total new generation capacity in 2016
  2. New York announced an initiative to divest the city’s investment from fossil fuel owners

The 2014 report by the Intergovernmental Panel on Climate Change (IPCC) used the term “tipping point” to describe “thresholds for abrupt and irreversible change” as it relates to the planet’s ability to adapt to rising temperatures. Could this same terminology be used to describe the shifts in global energy investment away from fossil fuels and toward renewable energy?

Through 2017, a number of companies in Germany, the UK, and the Netherlands announced offshore wind and solar projects that would rely on market powers instead of government subsidies, signalling a new level of market resilience for renewables.

On April 31, 2017, in the first of two German auctions, Dong Energy won the right to build three offshore wind projects in the German North Sea with a total of 590MW of generation capacity. They won with a “zero-bid,” meaning that the projects would receive no government subsidies on top of the wholesale electricity price.

On September 26, 2017, Anesco, a UK clean tech company, opened the Anesco Clayhill solar farm and energy storage facility to supply 10MW of power as the first UK solar project to operate without government subsidies. And on December 19, 2017, a subsidy-free offshore wind auction similar to the one in Germany was awarded to Vattenfall, a Swedish energy company, and Statoil of Norway to provide up to 295MW and 760MW of capacity respectively.

Further evidence of this shift has been growing over the past few years. According to the United Nations Environmental Programme report, Global Trends in Renewable Energy Investment 2017, renewable energy projects represented 55 percent of the total new generation capacity in 2016, outpacing fossil fuel generation for the fifth year in a row and rising to 11.3 percent of global energy generation.

On January 10, 2018, the mayor of New York City announced an initiative to divest the city’s investment from fossil fuel owners, the first announcement of its kind. “New York City is standing up for future generations by becoming the first major US city to divest our pension funds from fossil fuels,” said Mayor de Blasio. “At the same time, we’re bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits.”

And in Asia, China continues to demonstrate a dominant focus on clean energy projects in technology, with solar manufacturers in the country representing 60 percent of global solar cell production.

Among the drivers behind this acceleration are the advances in technology behind solar, wind, and energy storage that are simultaneously improving the efficiencies as well as dramatically driving down the costs.

In its 2016 report titled The Power to Change: Solar and Wind Cost Reduction Potential to 2025, Adnan Z. Amin, Director-General of the International Renewable Energy Agency (IRENA), declared that “the age of renewable power has arrived. In every year since 2011, renewable power generation technologies have accounted for half or more of total new power generation capacity added globally. In 2015, a new record was achieved with around 148 GW of renewable power added.”

That report further estimated that the generation costs of electricity from onshore wind and solar could decline by 26 percent to 59 percent respectively over the next decade to 2025. Furthermore, energy storage research by McKinsey concluded that “… costs are falling and could be $200 per kilowatt-hour in 2020, half today’s price, and $160 per kilowatt-hour or less in 2025.”

But in spite of all this, significant barriers still exist that will mitigate the pace of acceleration for renewables. Around the world, governments continue to support policies and subsidies that favour fossil fuel producers, but the values are decreasing.

In 2016 the International Energy Agency estimated global fossil fuel consumption subsidies at $260 billion, down close to $50 billion from the previous year and down more than 50 percent overall since 2011.

Other government policies, such as the recent announcement by the Trump administration of a new 30 percent tariff on solar panels imported into the US, will have an effect on the progress for renewables but this will not likely last. According to Abigail Ross Hopper, President and CEO of the Solar Energy Industries Association (SEIA) “Our industry will emerge from this. The case for solar energy is just too strong to be held down for long, but the severe near-term impacts of these tariffs are unfortunate and avoidable.”

Access to capital, insurance and other financial instruments to mitigate risks also represent a challenge, but the outlook is improving here too. The Bloomberg New Energy Finance inaugural Corporate Energy Market Outlook report from January 22, 2018 suggests that corporations are the dominant force behind investments in renewables.

“Companies, led by tech giants including Apple Inc. and Facebook Inc., are snapping up more clean energy than ever, even as shifting environmental policies from the U.S. to Europe threaten the economics of renewable energy,” says report contributor Christopher Martin. Forty three companies signed up for 5.4 gigawatts of clean power. “That’s up from 4.3 gigawatts in 2016 and is enough to displace at least 10 coal-fired power plants.”

Continued cost declines combined with increasing pressure from companies, investors, and the public to alter government policies in support of global initiatives to combat climate change as evidenced by the Paris Agreement signal that the momentum towards renewable energy generation is clearly at a point of irreversible change. Further improvements in technology as well as financial instruments and incentives will only serve to improve the outlook for a cleaner energy future.

In a speech to the World Economic Forum in Davos Switzerland on January 25, 2018, Rachel Kyte, CEO and Special Representative to the UN Secretary-General for Sustainable Energy for All, said “There’s no turning back on renewables.”

 

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Talk (12)

RC

Robin Cocker

"Alan, Good points. I think the dis..."
JC

Jonathan Cardy

"Yes at that price you aren't going to..."
ND

Nino Dvoršak

"6/10"
AH

Alan Hutchinson

"Thanks Hubert and Robbie both for you..."

Sources & References

Selected references

D’Aprile, Paolo, John Newman, and Dickon Pinner (August 2016). The new economics of energy storage. McKinsey & Company.

IPCC (2014). Climate change 2014: Synthesis report: Summary chapter for policymakers. Geneva, Switzerland: United Nations Intergovernmental Panel on Climate Change (IPCC).

IRENA (June 2016). The power to change: solar and wind cost reduction potential to 2025. Bonn, Germany: International Renewable Energy Agency (IRENA). ISBN 978-92-95111-97-4.

McCrone, Angus, Ulf Moslener, Francoise d’Estais, Christine Grüning, Abraham Louw, Rohan Boyle, David Strahan, Bryony Collins, Kieron Stopforth, and Lisa Becker. (2017). Global trends in renewable energy investment 2017. Frankfurt, Germany: Frankfurt School of Finance and Management.

United Nations (2014). The Paris Agreement. United Nations. New York, USA.


Author

Canada
Systems Architect and energy and sustainability enthusiast. https://www.linkedin.com/in/hughlindsay/

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Talk about this Story

  1. Thanks for this piece. It is encouraging. May I make a plea for more clarity? The paragraph which starts “That report further estimates…” says
    “costs of electricity… could further decline an additional 25% to 59%…”
    Point 1: one cannot add two percentages of change and obtain another percentage of change. The word “additional” is misleading. Percentages are a bit more subtle than that.
    Point 2: what is changing? In this case it might be the cost of some energy, e.g. whatever energy it takes to boil an egg, or it might be the cost of the system which can be used to collect the energy and send it down wires to my cooker, e.g. a solar panel.
    Later on is written “costs… could be $200 per kilowatt-hour…”.
    Point 3: this seems rather a lot. I am not sure, but I imagine in this household we use about a kilowatt-hour of electric energy each day on average. At that rate, our annual electricity bill would be more than our annual disposable income.
    Point 4: if this is the cost of the generating equipment, solar panels and cables etc., the figure of $200 sounds rather more reasonable, but it still needs clarifying. First, it will be a cost per unit of power (kilowatt), not of energy (kilowatt-hour). Second, will it be the cost per kilowatt under optimal sunshine at midday or will it be the expected average cost, allowing for clouds and sunsets?
    Hoping this helps. Best wishes.

    1. Alan,

      Good points. I think the distinction between generation costs and storage costs has now been dealt with by others, but I just wanted to comment that if you live a western lifestyle, you’re likely to use a lot more than 1kWh of electricity per day.

      My contention is based on the experience of generating and storing all of my electricity from solar, wind and micro CHP for several years, and subsequently paying a household electricity bill.

      1kWh is roughly what a typical fridge freezer might use in a day. In the UK, household energy usage is more like 10kWh per day.

      I have not checked the accuracy, but there is some interesting international and UK-centric information here that supports these figures: https://www.ovoenergy.com/guides/energy-guides/how-much-electricity-does-a-home-use.html

      There’s also this UK government information for annual household electricity, which seems to tally: https://www.ofgem.gov.uk/gas/retail-market/monitoring-data-and-statistics/typical-domestic-consumption-values

    2. Hello Alan. You raise excellent points. I am sure the originating author will be happy to have your feedback.

      I carefully checked the paragraph you queried against the source, namely IRENA (2016). The key information is given in the executive summary (pages 10-19) and in particular table ES-1 (page 10). First, the figure of 25% is incorrect, it should be 26% and applies to onshore wind. Second, the phrasing in the article is clumsy and should better read “That report further estimated that the generation costs of electricity from onshore wind and solar could decline by 26% to 59% respectively over the next decade to 2025”. I will make that edit shortly. The costs quoted are the average levelized cost of electricity production (LCOE) in 2015 US dollars. This is explained in the report.

      But the quote in the article from McKinsey is neither referenced nor present in IRENA (2016). It should be removed if nobody can cite the source. I’ll do that in a week if no clarification is forthcoming. Regarding the figure of “$200 per kilowatt-hour”, I suspect MWh is the correct unit. Again, we can check this against the actual report once we have the details.

      Regarding your general question of the conditions that should apply when determining LCOE’s, I believe that technology-specific LCOE’s under “average” conditions are of limited value and that detailed integrated system models are vastly more preferable for both private planning and public policy development (disclosure: I work with these kind of models).

      I personally prefer page numbers be given when quoting specific information. Perhaps this, together with academic style referencing, should become the norm on WT. If so, this will need markup support from the platform (WT techs should note this as being a feature request).

      REFERENCES

      IRENA (June 2016). The power to change: solar and wind cost reduction potential to 2025. Bonn, Germany: International Renewable Energy Agency (IRENA). ISBN 978-92-95111-97-4. http://www.irena.org/DocumentDownloads/Publications/IRENA_Power_to_Change_2016.pdf

      1. Hi Alan and Robbie.

        Thanks both for your inputs.

        I agree with the fix for the awkwardly constructed phrasing.

        For the McKinsey reference, here’s a link to the article: https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-new-economics-of-energy-storage – I understand the $/kWh statements to refer to the costs to build the storage capacity which can be expressed in terms of power (kW) or energy (kWh). For instance a Tesla PowerWall can have a continuous output capacity of 5kW but a storage capacity of 13.2kWh — and using the McKinsey value of $200 per kWh, the cost for 5KW output capacity and 13.2kWh of storage capacity would be estimated at $2,640, as a point of reference.

        And I had (and do) intend to add additional references. The article went from draft to published before I had a chance to review it again, so I fully appreciate the level of detail in your reviews and contributions.

        1. Thanks Hubert and Robbie both for your good conscientious work. Alan.

        2. Hello Hubert. Electrical storage is indeed expensive and mostly indicated for smoothing diurnal variations in systems with high shares of photovoltaics. So the contested per kWh figure is for storage capacity and not generation.

          You mention Tesla. Their recently installed Li-ion 100 MW (instantaneous) battery bank in South Australia is an interesting development but no longer contemporary news. In that case, the installation unexpectedly provided a sub-second response to a distant coal plant outage. There are now all manner of solid state solutions that ameliorate the effects of renewable energy intermittency (notwithstanding that the example given involved a failure with conventional technology).

          Thanks for drafting the original story. Robbie

          REFERENCES

          D’Aprile, Paolo, John Newman, and Dickon Pinner (August 2016). The new economics of energy storage. McKinsey & Company. https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-new-economics-of-energy-storage

          1. Yes at that price you aren’t going to see people queue up to store photovoltaic electricity from the sunny summer to the less sunny winter. But it does become much more attractive if you are using it hundreds of times a year to store daytime solar electricity for evening use.

  2. Hello Hubert. Very nicely written. And from my understanding, completely correct, both in detail and trend.

    Kemfert et al (2017) offers a model-based perspective which also backs up the theme of the article. But model projections probably belong to another story.

    Kemfert, Claudia, Thorsten Burandt, Karlo Hainsch, Konstantin Löffler, Pao-Yu Oei, and Christian von Hirschhausen (November 2017). “Nuclear power unnecessary for climate protection—there are more cost-efficient alternatives” DIW Economic Bulletin. (48.2017): 498–508. ISSN 2192-7219. https://www.econstor.eu/bitstream/10419/172948/1/1009290517.pdf

  3. Get rid of the clickbait headline! This is not buzzfeed.

    1. I like the title. I’ve even seen Ottmar Edenhofer, Germany attempt an analysis along these lines using phase plots, attractors, and chaos theory. Tipping points are a legitimate concept in this context.

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