Renewables Are Closing In On Fossil Fuels
Coal has been getting the squeeze for years now, but the plunging cost of renewable energy is already starting to give natural gas a run for its money. The implications for the incumbent fossil fuel industry are dire.
“Coal and gas are facing a mounting threat to their position in the world’s electricity generation mix, as a result of the spectacular reductions in cost not just for wind and solar technologies, but also for batteries,” according to a report from Bloomberg New Energy Finance (BNEF).
The surprising finding from the report is that renewable energy is challenging gas and coal in several ways in electricity markets. BNEF says that fossil fuels are getting hit by renewables in bulk generation, dispatchable generation, and the “provision of ‘flexibility.’”
First, bulk generation. Wind and solar have become so cheap on a levelized cost of electricity (LCOE) basis, that they are increasingly representing the go-to source of new electricity generation projects.
More surprising, however, is the sudden challenge of batteries in the market for “dispatchable power,” where generators must respond to grid demands by ramping up or down power generation. For years, critics of renewable energy have fallen back on the argument that “the sun doesn’t always shine and the wind does not always blow.” That has long been the Achilles Heel of renewable energy – its intermittency, and therefore, its lack of reliability.
But BNEF says that wind and solar are increasingly being paired with energy storage technologies, which allows for “’variable’ sources to smooth output, and if necessary, shift the timing of supply.”
The third segment of the electricity market where renewable energy is threatening fossil fuels is for “flexibility,” or, as BNEF puts it, the “ability to switch on and off in response to grid electricity shortfalls and surpluses over periods of hours.” The falling cost of batteries means that they are “increasingly cost-effective and are starting to compete on price with open-cycle gas plants.”
Up until now, wind and solar costs looked competitive on paper, but the intermittency problem was cited as a reason why renewables would grab only a small slice of the market, a problem that was thought to persist for years to come. But the plunging cost of energy storage might mean that the energy transition unfolds faster than previously anticipated.
The writing on the wall for coal has been clear for some time. But the threat to natural gas was not thought to occur so soon. Natural gas has been billed as a “bridge fuel,” a bridge that could last for decades until the cost of renewable energy came down.
However, the economics are pretty dire for fossil fuels. The LCOE for onshore wind currently stands at about $55 per megawatt-hour (MWh), which is a global comprehensive average that incorporates equipment, construction, financing, operating and maintenance costs, and average run time. That cost is down 18 percent from the first six months of 2017, an impressive and significant decline.
Solar LCOE costs without tracking comes in at $70/MWh, which is also down 18 percent from the first half of 2017.
