Grid Parity, Low LCOE Driving 34% Global Renewables Capacity by 2030

by Silvio Marcacci

When it comes to global electricity generation, coal is still king – but not for long

Fast-changing economics mean renewable energy worldwide will represent 34% of all installed capacity by 2030, according to the World Energy Perspective: Cost of Energy Technologies — a report from the World Energy Council (WEC) and Bloomberg New Energy Finance (BNEF).

Global levelized cost of electricity graph via World Energy Council
Global levelized cost of electricity graph via World Energy Council

The report finds many clean energy technologies are already cost competitive with fossil fuels and only getting cheaper, echoing another analysis that found US wind and solar costs fell 50% since 2008. As a result, fossil fuel’s slice of the world energy pie is projected to fall fast, from 67% in 2012 to 40%-45% in 2030.

Falling Renewable LCOE Powers Clean Energy Surge

Vast differences in the cost of building and generating power exist across the globe, but one trend is clear – the levelized cost of electricity (LCOE) continues to fall for mature renewable energy technologies, placing them close to grid parity with fossil fuels. In addition, the cost of producing power from renewables fall continue at a rate related to the level of usage, a trend known as the “experience curve.”

Our study finds that although fossil fuels continue to dominate, renewable energy and the investment appetite for them are growing.

With wider deployment the price of renewables will fall, reducing the risk for investors, and we expect to see greater uptake over the years. — Guy Turner, Chief Economist at BNEF.

The WEC report uses several cost metrics exist to evaluate power generation including capital expenditures, operating expenditures, and capacity factor, but LCOE stands as arguably the most important indicator of renewable energy’s value because it’s the only one that evaluates the total lifecycle costs of producing a megawatt hour (MWh) of power.

LCOE is best explained as the price a project must earn per MWh in order to break even on investment and considers cash flow timing, development and construction, long-term debt, and tax implications to equally evaluate all energy technologies on an equal basis in terms of their actual costs.

But most importantly, LCOE underlines the ascendance of renewable energy across the world – especially wind and solar.

Wind Power Gusts Ahead

Wind power has already become the largest non-hydro renewable electricity source and is projected to more than triple from 5% of global installed capacity in 2012 to 17% by 2030, breezing past large hydropower. From 2000-2010 global onshore and offshore wind capacity increased 30% per year, reaching 200GW installed in 2010.

Onshore wind LCOE by region
Onshore wind LCOE by region graph via World Energy Council

Onshore wind’s LCOE has fallen 18% since 2009 on the strength of cheaper construction costs and higher capacity factors.

Turbine costs have fallen nearly 30% since 2008, outpacing the traditional experience curve.

The LCOE for onshore wind is cheapest in India and China, running between $47-$113 and making well-sited wind farms in these countries among the cheapest in the world – an incredibly important factor considering their surging demand for power is currently being met by coal.

The LCOE picture isn’t as clearly defined for offshore wind, as 95% of the world’s 4GW installed offshore wind capacity is located in European waters.

By 2020 installed capacity growth in Asia will surge, offsetting Europe’s dominance with 40% of all installed annual capacity – China alone will have 30% of all new capacity. As more offshore wind comes online in different markets, LCOE will become clearer.

Solar’s Remarkable Shine

But if wind’s LCOE drop has been steady, solar energy’s has been meteoric.

The WEC reports feed-in tariffs and plummeting photovoltaic module prices make solar competitive with most forms of power generation – in some markets with expensive power, like Germany, businesses with installed solar now find using their generated power more profitable than selling it to the grid.

Solar power LCOE over time chart via World Energy Council
Solar power LCOE over time chart via World Energy Council

As a result, solar power’s worldwide capacity will absolutely boom, growing from 2% of installed capacity in 2012 to 16% by 2030. China and Japan will be biggest beneficiary of solar’s rise, with China set to exceed 50GW installed solar by 2020.

The WEC’s forecast for solar power is incredible, but even this outlook is underestimates solar’s clean energy potential, because it only includes projects above 1 megawatt in capacity – completely ignoring the spread of small-scale rooftop solar and the rise of distributed generation

Solar power LCOE by region graph via World Energy Council
Solar power LCOE by region graph via World Energy Council
Fossil Fuel’s Achilles Heel: Operational Costs

In spite of falling renewable costs, fossil fuel generation is still cheaper in most regards, except for one – the price of operation.

The WEC notes that once renewables are built and online, their costs are mainly marginal operational and maintenance expenses. Compare that to fossil fuels, whose costs are volatile and subject to change from factors like commodity price swings and external costs like carbon pricing and pollution.

This trend is most clearly seen in developed nations like Western Europe, America, and Australia, where the WEC says the potential for significant amounts of new coal generation to come online is low.

Today, developing nations buck this trend and coal is a growing generation source in Brazil, China, and India. In fact low capital costs make China the cheapest country to generate power from coal, less than half the LCOE in Europe or the US.

Coal LCOE by region chart via World Energy Council
Coal LCOE by region chart via World Energy Council

But the tide is starting to turn, evidenced by growing concerns about air pollution in China and the development of carbon markets in many of the world’s developing economies where fossil fuels have dominated generation.

Grid Parity For Renewables Fast Approaching

Put it all together, and it’s clear to see global energy economics are changing fast.

While coal still dominates global electricity production, renewables are catching up with net investment growing seven-fold from 2004-2011, outpacing fossil fuels for the second year in a row in 2012. And as more renewables come online, their costs continue to fall faster and faster from larger economies of scale.

The cost of most technologies, and most dramatically that of solar PV, is coming down with production scale-up in many areas of the world.

With such growth, grid parity will become reality in the coming years. — Dr. Christoph Frei, World Energy Council Secretary General

This article, Grid Parity, Low LCOE Driving 34% Global Renewables Capacity by 2030, is syndicated from Clean Technica and is posted here with permission.

About the Author

Silvio Marcacci is Principal at Marcacci Communications, a full-service clean energy and climate-focused public relations company based in Washington, D.C.

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New Compressed Air Storage Deals Fatal Blow To Zombie Lies About Wind And Solar

by Tina Casey – Special to JBS News

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Isothermal CAES courtesy of SustainX.

We don’t expect the wind and solar naysayers to give up any time soon, but new utility-scale energy storage solutions are beginning to come on line, and they will put to rest this whole notion that intermittent energy sources (namely, wind and solar) can’t provide a significant proportion of reliable power to the national grid.

The latest development comes from a company called SustainX, Inc. The technology is called an isothermal compressed air energy storage system, and since we’ve been following its progress for the past several years we’re happy to tell you that SustainX has completed construction of its first utility scale system. It was hooked up to the grid earlier this month and it’s now in the process of revving up to speed.

An Isothermal Compressed Air Energy Storage System

We first took note of SustainX back in 2009, when it spun out of Dartmouth College. The goal was to store four megawatt-hours worth of energy in transportable 40-foot long containers, while achieving a 70% reduction in the amount of energy needed for conventional compressed air energy storage (CAES) systems.

Last year, the company took a big leap forward by entering a technology licensing agreement with the University of Minnesota.

Isothermal refers to storage of compressed air at a constant temperature, which is a key element in the improved energy efficiency of the system.

The new SustainX CAES system is located in New Hampshire, at the SustainX headquarters. As SustainX describes it, the new system represents a next-generation improvement over earlier CAES systems dating back to the 1970′s which typically are located underground and run on fossil fuel.

The SustainX system was designed to run on grid-supplied electricity, so depending on the local grid mix it can potentially run exclusively on emission free sources including wind and solar. That also means that it is not dependent on caves or other geological quirks for site selection.

Some patented, cutting edge tweaks by SustainX make all the difference, but other than that, the entire system consists of practically nothing but steel, water, and air. Here’s how it works:

A mechanical drivetrain utilizes an electric machine and a crankshaft…This efficient mechanical link powers a two-stage, mixed-phase (water-in-air) heat-transfer process within pneumatic cylinders. During piston strokes, water is sprayed into the air-filled chamber of each cylinder, allowing heat to be transferred from water to air during expansion or from air to water during compression. The same ICAES power unit provides both isothermal compression and expansion, eliminating the cost of separate compressor and expander subsystems.

We Built This CAES!

If the new facility proves successful we taxpayers can all do a group hug because SustainX received a $5.4 million award from the Department of Energy to help accelerate the project, as part of the Obama Administration’s Smart Grid initiatives.

The project, which also includes private sector investors, appears to be on track. Completion of the test phase  is due by the end of this year and a final technology report is due in 2015.

CAES and other new storage technologies fit into the Smart Grid concept partly by eliminating the need to construct new peaking plants. Peaking plants, which typically run on natural gas, are designed to come on line quickly to address demand spikes, but most of the time they sit idle, which means that they are a very expensive way to provide for variations in local energy consumption to say nothing of their dependence on fossil fuel sources.

In terms of the levelized cost of energy (LCOE, not to be confused with EROI), a mechanically simple system like the SustainX solution has some clear advantages over building new peaking plants, including the potential for far lower operating, maintenance and repair costs in addition to lower fuel costs.

In the past, CAES systems were primarily sited to take advantage of caves and other geological quirks, so the Smart Grid goal of developing more geographically flexible, above ground systems is also critical if CAES is to play a major role in the national grid.

The Future Of CAES

Coincidentally, just last month CleanTechnica covered a new report by the consulting firm Navigant, which predicted a burst of growth in the CAES market as new technologies climb out of the R&D stage including scalable, modular systems.

In that regard, we’re following a company called LightSail, which has developed an energy efficient, mist-cooled system that enables above-ground storage. Last we heard, LightSail had secured $5.5 million in private funding for its CAES project from A-list investors including Bill Gates and PayPal co-founder Peter Thiel.

The underground storage approach is also still worthy of development in certain regions, as evidenced by Pacific Northwest National Laboratory, which has been researching the potential for storing compressed air in porous rocks in the Northwest.

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This article, New Compressed Air Storage Deals Fatal Blow To Zombie Lies About Wind And Solar, is syndicated from Clean Technica and is posted here with permission.

About the Author

Tina Casey Tina Casey specializes in military and corporate sustainability, advanced technology, emerging materials, biofuels, and water and wastewater issues. Tina’s articles are reposted frequently on Reuters, Scientific American, and many other sites. You can also follow her on Twitter @TinaMCasey and Google+.

Renewable Energy cost reductions of 50% since 2008

by Silvio Marcacci

That renewable energy is becoming more cost-competitive with fossil fuels isn’t news — as technology improves and more clean power generation comes online, electricity without emissions gets cheaper.

But one new analysis reveals just how shockingly cheap it’s gotten.

The levelized cost of electricity (LCOE) from wind and solar sources in America has fallen by more than 50% over the past four years, according to Lazard’s Levelized Cost of Energy Analysis 7.0, recently released by global financial advisor and asset manager firm Lazard Freres & Co.

Lazard’s analysis compared the LCOE for various renewable energy technologies to fossil fuels on a cost per megawatt hour (MWh) basis, including factors like US federal tax subsidies, fuel costs, geography, and capital costs.

Unsubsidized LCOE for US energy
Unsubsidized LCOE for US energy graph via Lazard

Utility-Scale Solar, Wind Lead LCOE Charge

The LCOE analysis shows that even during one of the most turbulent times in recent memory for renewables, the environmental and economic benefits of clean energy continue to spur technological innovations and utility-scale deployments across the globe.

According to the analysis, utility-scale solar photovoltaics (PV) and leading types of wind energy are leading the surge — the LCOE of both power sources has fallen by more than 50% since 2008. Lazard estimates that utility-scale solar PV is now a competitive source of peak energy compared to fossil fuel power in many parts of the world without subsidies.

In fact, Lazard finds certain forms of renewable energy generation are now cost-competitive with many fossil fuel generation sources at an unsubsidized LCOE, even before factoring in externalities like pollution or transmission costs.

Specifically, solar PV and wind energy both fall within the range of $68-$104 per MWh, making them extremely competitive with baseload power from coal ($65-$145 per MWh), nuclear ($86-$122 per MWh), and integrated gasification combined cycle ($95-$154 per MWh).

Financial Incentives, Energy Storage Could Boost Fortunes

The LCOE of electricity from those renewable energy sources falls even further when US federal tax subsidies are included in the equation. Lazard realistically admits incentives are key to pushing renewables toward grid parity without subsidies, but finds wind ($23-$85 per MWh) and thin-film utility scale solar PV ($51-$78 per MWh) especially competitive.

LCOE for US energy with tax subsidies
LCOE for US energy with tax subsidies chart via Lazard

While wind is progressing quite well — generally speaking — against fossil fuel generation in Lazard’s analysis, it could get much cheaper much faster in the near future when combined with energy storage. The report cites numerous examples of existing battery storage combining with off-peak wind production to demonstrate value in load shifting and peak power applications.

And while utility-scale solar PV leads the LCOE charge, rooftop solar PV remains expensive by comparison — a trend evident in recent summaries of the US market. Ironically, Lazard says this may be attributable to the generous combination of multiple levels of tax incentives, which distort resource planning by excluding externalities in long-term outlooks.

Power generation rates for US metro areas
Power generation rates for US metro areas chart via Lazard

Interestingly enough, solar is becoming an economically viable peaking generation source in many geographic regions of the US. This trend is especially apparent in transmission-constrained metropolitan areas like New York City, Los Angeles, Washington DC, Chicago, and Philadelphia. Lazard estimates solar could become even more competitive as prices continues to fall, but the observation is somewhat muddled by factors like system reliability, stranded costs of distributed generation for existing systems, and social costs/externalities of rate increases.

“Increasingly Prevalent” Renewable Energy Use

But the most promising potential for the future of renewable energy sources may be their value as distributed small-scale generation. Lazard estimates that the expensive capital construction costs of fossil fuel generation boost their LCOE when utilities consider future resource planning across an integrated system, and make them less cost-competitive — without even considering externalities.

US energy capital cost comparison
US energy capital cost comparison chart via Lazard

Lazard concedes that the future of renewable energy is far from set though, and still faces significant challenges like establishing long-term financing structures in the face of falling subsidy levels, excess manufacturing capacity, and the globalization of markets.

However, renewable energy’s role in America’s energy mix is likely to continue growing despite these challenges, concludes the analysis.

“We find that alternative energy technologies are complementary to conventional generation technologies, and believe that their use will be increasingly prevalent for a variety of reasons.”

This article, Analysis: 50% Reduction In Cost Of Renewable Energy Since 2008, is syndicated from Clean Technica and is posted here with permission.

About the Author

is Principal at Marcacci Communications, a full-service clean energy and climate-focused public relations company based in Washington, D.C.

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Deutsche Bank Predicting Huge Distributed Solar PV Uptake

Deutsche Bank Predicting Huge Distributed Solar PV Uptake

This post originally published on RenewEconomy by Giles Parkinson

Energy analysts at Deutsche Bank are predicting a huge surge in the uptake of ‘distributed solar’ PV in the United States, the world’s biggest economy and electricity market, saying solar PV installations could rise 7-fold in coming years and lift overall solar PV capacity to nearly 50GW in the US by 2016.

U.S. solar installations through 2016. Image courtesy of Deutsche Bank.
U.S. solar installations through 2016. Image courtesy of Deutsche Bank.

The expected boom in ‘distributed solar’ [which are those installations that are placed on homes and commercial businesses] is based on predictions that 1) solar PV module prices will continue to fall, 2) grid prices will continue rise, and 3) innovative financing options will provide ample and cheap capital.

The US solar market has been dominated by utility scale installations to date — with comparatively little rooftop solar.

But Deutsche Bank estimates that in 2015 and 2016, annual installation rates in the US will jump to 12GW and 16GW, meaning it will likely overtake China, Japan and Germany for the most annual installations.

It says total US solar capacity will grow to 50GW under this scenario (Germany is currently at 35GW but slowing, while China aims for 35GW by 2015) and Deutsche Bank says up to 30GW of US installed solar capacity will come from distributed generation.

We believe 2015 will be a key inflection point for solar power in the United States,” Deutsche Bank analysts say.

The economics are already compelling in 20-30 percent of US states and we expect this to improve as soft costs (balance of systems) come down and potential customer awareness begins to ramp.

The Deutsche Bank scenario suggests the US will become the biggest solar market in the world.

And while 50GW [of solar] will only represent 2% of the country’s total power generation by 2016, its impact on the incumbent electricity market could be considerable, as former Energy Secretary Stephen Chu, NRG CEO David Crane, Duke Energy boss Jim Rogers and Jon Wellinghoff, the chairman of the Federal Energy Regulatory Commission — among many others — have predicted.

deutsche-us-solar-install
U.S. solar installations through 2016. Image courtesy of Deutsche Bank.

We see solar becoming increasingly mainstream as it passes cost competitiveness with traditional forms of generation, the Deutsche Bank analysts write.

While we will likely see some utilities fight it every step of the way (because it threatens their business model), we expect system economics will ultimately win in the longer run and yearly installations will continue the general upward trajectory.

Deutsche Bank estimates that solar PV is [already] at grid parity in the 10 states in the US without additional subsidies. The key to this is the falling price of modules, and the growth of financing options, which benefit from a 30 percent investment tax credit in the US.

It estimates that the long term cost of electricity (LCOE) for rooftop solar is currently at 11-15c/kWh in the 10 states at grid parity, which compares to a retail price of 11c-37c/kWh.

If, as it expects, solar module prices continue to fall to around $2.50 a watt from $3/watt now, then the LCOE in the grid parity states (mostly states with the best solar resource) will fall to 8c-14c/kWh, and another 12 states will come into grid parity. (See graph below).

Screen-Shot-2013-09-04-at-8.42.45-AM
States already at Grid Parity and states poised to hit Grid Parity. Image courtesy of Deutsche Bank.

It notes that economies of scale make modules for commercial and industrial systems even cheaper, with systems estimates at $US2.50/watt for commercial and $2.25/watt for industrial. Both prices are before the benefit of the investment tax credit.

By 2016, the number of US states at grid parity for distributed solar would be 36 if the investment tax credit was reduced to 10 percent — or 47 if the ITC remained at 30 percent. It says that uncertainty over the extension of that credit could cause a boom in solar investment before the deadline expires in 2016.

Deutsche Bank’s focus on the cost of financing is the key, as it plays a critical role in which technologies will be “investable” in future years, as Bloomberg New Energy Finance pointed out in its assessment of the cost of renewables versus fossil fuels earlier this year.

Shift in the Levelized Cost of Electricity. Image courtesy of Deutsche Bank.
Shift in the Levelized Cost of Electricity. Image courtesy of Deutsche Bank.

Deutsche Bank says the growth and popularity of yieldco” type structures — and the fact that they make a lot of money for their investors — means that solar financing costs by will fall by 200-300 basis points, and would boost liquidity.

It says that every 100 basis point reduction in financing costs, results in 1 c/kWh reduction of LCOE (see graph).

We believe solar LCOE could potentially decrease from 10-16 c/kWh to 8-14 c/kWh as a result of wider acceptance of yieldco type structures, the analysts say.

Wider availability of financing options could provide project developers some cushion in a rising interest rate environment.

Another big factor is the increasing price of fossil fuels. Deutsche Bank estimates that 50GW of coal-fired capacity will be removed in the US, in coming years due to pollution and emission laws.

Some new power stations may be built to guarantee supply, but this would force the regulated price of electricity higher, and make solar even more competitive. “We view this as a positive,” it says.

Cost of photovoltaics (PV) in Germany compared to the cost of PV in the U.S.A. Image courtesy of Deutsche Bank.
Cost of photovoltaics (PV) in Germany compared to the cost of PV in the U.S.A. Image courtesy of Deutsche Bank.

Finally, the bank says the price path is already proven by what has happened in Germany, which until a few years ago was the biggest solar PV market in the world, and still holds the most by aggregate with more than 35MW installed.

We have seen dramatic reductions in system costs over the last decade and expect this to continue in the US.

We believe we can see 10-15 percent annual reductions in system cost/watt over the next several years, which should drive pure LCOE down to the 9-14 c/kwh range for potential grid parity states.

Historically, we have seen this play out, although we note that much of the reduction going forward will come from non-panel costs.

It says trends in German installation costs (shown above) show a clear down trend in a more mature industry.

We believe the US can continue its downward trend as systems become larger and soft costs couple with industry efforts towards standardization and efficiency gains to reduce the cost per watt peak before the ITC is reduced.

This article, Deutsche Bank Predicting Huge Distributed Solar PV Uptake, is syndicated from Clean Technica and is posted here with permission.

About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia’s energy grid with great interest.