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Solar, Wind Quickly Catching Up on Cost

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Renewable energy continues to get cheaper and cheaper, catching up to fossil fuels on cost. Combined-cycle gas turbines (CCGT) are the cheapest technology for new power generation in most parts of the world, but onshore wind and solar photovoltaic (PV) are getting closer. In fact, onshore wind and PV are already cheaper when wind or sunlight are abundant -- even in the US where gas is cheaper than anywhere else. In average conditions, onshore wind and PV are expected to displace gas around 2020 in Europe, and around 2030 in the US as booming global demand keeps fueling economies of scale. Those are some key findings from EI New Energy's latest Energy Cost Report (related). The data, based on a proprietary levelized cost of energy (LCOE) model with updated 2018 estimates and projections through 2050, also suggest that coal is unlikely to ever come back as a competitive choice for new capacity, and that offshore wind, once a prohibitively expensive technology, will beat fossil fuels within the next two decades or so (NE Mar.29'18). By contrast, carbon capture and storage (CCS), despite potentially significant cost savings, would need additional support -- such as emissions standards, investment subsidies or substantial carbon pricing -- to reach competitiveness before mid-century (NE Nov.30'17). Gas turbines are cheap and allow flexible operations, which makes them good companions to intermittent renewable sources, supporters say. But batteries are inherently better than any other technology when grid operators need to respond quickly, speakers emphasized at the recent US Energy Storage Association conference in Boston. Today, for example, frequency regulation -- a key service for the grid -- is typically done by ramping up or down gas turbines, but this can take minutes while batteries can do the job in milliseconds. Batteries are equally well suited to cover peaks and make up for renewables' intermittency, but they are still expensive. However, their cost -- already 80% cheaper than a decade ago -- is expected to tumble further as electric vehicle manufacturing -- their main application by far -- continues to build up in the near future. Consultancy GTM Research's Daniel Finn-Foley believes they could outcompete gas peakers everywhere in the US within five years, and all gas plants -- including CCGTs -- within a decade (NE Apr.26'18). Another problem with gas is volatility. Fuel costs, which are difficult to forecast, account for between 45% of a CCGT's lifetime generation cost in the US and around 60%-75% in Europe and Asia. By contrast, wind, solar and hydro generation costs are predictable as the upfront investment typically accounts for 80% of total cost, while maintenance and other operating costs are small and more or less indexed with inflation. Yet the size of renewables investment, with capital costs per kilowatt hour typically three to four times more expensive than for CCGTs, can be a significant drawback for renewables, especially in poor countries, even when LCOE calculations show that alternative technologies are cheaper than gas over the long lifetime of a project. On the other hand, solar PV and onshore wind are highly scalable, which makes it possible to build small units and extend them later, while gas and steam turbines only come in big sizes. But LCOE comparisons only apply for investment decisions in new projects. For existing capacity, only variable costs are to be compared, including fuel, some operating and maintenance, plus carbon when applicable. That's because fixed costs, notably capital costs, are incurred anyway whether a plant runs or not, which excludes them from an operator's decision to dispatch. Renewables enjoy very low variable costs as they pay no fuel or carbon costs -- with the exception of biomass-fired plants, which must procure fuel. That makes most renewables virtually unbeatable once they cross the initial investment barrier and explains why gas can at the same time be Europe's cheapest technology for new generation and see its market share shrinking (WGI Jun.13'18). Wind and solar don't need carbon prices to compete against coal and gas, but carbon prices could play a big role in permanently triggering coal-to-gas switching among existing power plants, the data shows. This is even true in the US, where gas is currently cheaper than coal for generating power. This is basically because gas prices are expected to increase across the next few decades as demand would remain strong, whereas coal demand -- and therefore coal prices -- would stagnate. The main benefit of higher carbon prices would be for CCS, which would need over $100 per ton of CO2 in today's technology and fuel price conditions to displace conventional coal and, based on expected improvements, around $95/ton in 2030 and $80/ton in 2050, the data suggest. Even with CCS, coal is unlikely to ever regain market share as renewables, gas and nuclear are either already cheaper or will become so within the next few years. However, the International Energy Agency has warned that CCS is particularly important as a retrofit option, given the young age of the coal fleet and the ongoing construction of new coal units, particularly in Asia. Philippe Roos, Strasbourg

Topics:
Gas Demand, Coal, Upstream Technology, Carbon Capture (CCS), Low-Carbon Policy, Energy Storage
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