• Beyond Transitions

The Age of Cheap Renewables

It is no secret that conventional utility power plants running on fossil fuels (coal, oil, and more recently natural gas) are quickly losing the competitiveness race to their renewable energy counterparts. What was a rarity a few years ago, it is now an undeniable trend and a reality: the cost curves of renewables keep bending downwards and are progressively pushing away fossil fuel power generation technologies.


Declining energy and storage technology costs, capital/maintenance/operating costs, and more cost-efficient procurement practices have jointly contributed to reduce by 73% the global average levelised cost of electricity (LCOE) of utility-scale solar PV since 2010. Projects commissioned in 2017 are running at a LCOE of USD 0.10/kWh; while new onshore wind projects are running at USD 0.05/kWh. In some instances, we are actually seeing how the LCOE is being reduced to USD 0.03/kWh in places like Dubai, Mexico, Peru, Chile, Abu Dhabi and Saudi Arabia.


Figure 1. Global LCOE from utility-scale renewable power generation technologies,

2010-2017.

Source: IRENA Renewable Cost Database Note: The diameter of the circle represents the size of the project, with its centre the value for the cost of each project on the Y axis. The thick lines are the global weighted average LCOE value for plants commissioned in each year. Real weighted average cost of capital is 7.5% for OECD countries and China and 10% for the rest of the world. The band represents the fossil fuel-fired power generation cost range

If we factor in the costs related to environmental obligations in the form of a modest carbon tax of USD $7.50 per tonne of CO2, coupled with expected continuing price declines for solar, wind, and storage technologies at least up to 2020 (and most probably beyond that), renewable energy generation clearly outcompetes fossil fuel power generation in all cases. With today’s carbon price of €18.43 this should be a no-brainer. In short, the cost-competitiveness and economic performance of renewables today is undeniable. Fossil fuels, when subjected to the same environmental standards as those of renewable technologies, can no longer compete.


The drastic decline on renewable energy costs is in turn driving a real paradigm shift not only in the competitiveness of conventional power generation options, but on the broader system of energy generation, transmission, distribution, commercialisation and use.


Rapidly evolving energy systems are directly challenging the business models of conventional power utilities. If they are to play a relevant role in the future energy grid, they will have to transform their business models and quickly transition from volume-based business models (based on the maximisation of energy generation capacity, grid infrastructure, and trade volumes) towards value- or -performance-based business models anchored in personalised service provision and maximisation of ancillary services for optimal grid reliability.


More on the latter to follow in our upcoming post. Stay tuned!