Utilities Face ‘Perfect Storm’ From Falling Renewables Costs

by Giles Parkinson.

Originally published on RenewEconomy

A new report from leading utilities analysts at investment bank UBS suggests that energy utilities in Europe, North America and Australia are facing a “perfect storm” from the falling costs of renewables, energy efficiency and falling demand, and may not be able to sustain their business models.

The report – entitled; Can utilities survive in their current form? – is the latest in a series of assessments, reviews and analysis that point to the severe disruption to the centralized generation model, and the demand and supply dynamics that have governed the industry for the past few decades. To briefly summarise the UBS response to its own question, the answer is No.

UBS says the biggest impact on the current utility model will occur in developed markets, where renewables in general and distributed solar in particular will take more of an already depleted “demand pie.”

This, says UBS, will cause profits to fall and could force utilities, particularly generators, to look at greater exposure to renewables and distributed generation, and to other downstream services. It comes to a similar conclusion on this as the CSIRO Future Grid forum, and echoes some of the strategic decisions currently being mooted German energy giants RWE and E.ON.

“We expect the renewables onslaught to continue and that the going will only get tougher for conventional generators,” the UBS analysts write. “We believe they will need to examine and change their traditional business model to survive the renewables era.”

These new business models could include a greater focus on rooftop solar, energy efficiency, and consumer offerings that combined solar, storage, and electric vehicle infrastructure, as well as energy efficient appliances.

UBS says the economic for solar panels looks set to work best in Australia, the southwest US, Germany, Italy and, with a time lag, in Spain.

It notes that the combination of decreasing costs of solar and rising electricity bills means that “end-user” grid parity has been achieved in several key European market, and in Australia and the south-west of US.

This means that consumers can reduce the cost of their bills by more than the cost of the solar system – and rooftop solar systems are having the added impact of pushing thermal generation down the merit order, as Stanwell has testified in Queensland.

“As unsubsidised solar replaces conventional generation … in Europe, the US and Australia by shaving off the peak demand, it has started to reduce pool electricity prices,” UBS notes. And utilisation rates will also fall. This would lead to a 50 percent fall in profits from conventional utilities in Europe by 2020, based on current deployment forecasts.

UBS says the prices will fall so low that capacity will have to be removed to allow prices to recover. However, that capacity may be superseded anyway by the emergence of storage, potentially another blow to conventional generation.

Interestingly, UBS conducted a survey of 65 utility companies in Europe, Asia, America, Australia and Brazil – and the biggest number of utilities who viewed renewables as a threat where conventional generators in developed markets.

More than 50% of generators thought this way, compared to less than 5% in emerging markets. The percentages were virtually reversed when asked about the opportunity for renewables.

Must be something about sunk investments. Indeed, most developed market generators said renewables would lower their profits, while in emerging markets they thought renewables would increase their profits. UBS noted that the problems for conventional generators in developed markets would likely increase, given that penetration rates are still relatively low.

In Germany, however, households are expected to generate 29 percent of their needs from rooftop solar by 2020, and commercial businesses up to 18 percent. In Italy and Spain, commercial businesses are expected to generate more than one quarter of their own electricity requirements.

This article, Energy Utilities Facing ‘Perfect Storm’ From Falling Cost Of Renewables — Report, is syndicated from Clean Technica and is posted here with permission.

U.S. Fossil Fuels Losing to Wind and Solar Power

by Giles Parkinson.

Wind turbines
Fossil Fuels, Coal, Oil, and Natural Gas, are losing the electrical generation battle to Solar and Wind Power.

Originally published on RenewEconomy

The price of new power purchase agreements for wind farms and new solar projects in the US continue to defy all expectations, making some energy experts wonder why anyone would contemplate a new fossil-fuel plant.

A new report by UBS analysts in the US has crossed our desk. It is basically a write-up from a webinar hosted by UBS and Declan Flanagan, head of local renewable energy group Lincoln Energy, but  it provides some fascinating insight of what is happening in that market.

The first notable conclusion is the declining cost of wind energy. Contracts in Texas, which accounts for around one quarter of all US installations, are regularly below $30/MWH, and some are at $25/MWh. Even with a tax incentive, this still put wind well below $50/MWh.

Why is this happening? New equipment is lifting capacity factors by 5 percentage points, and Texas’ excellent wind conditions mean that wind farms are getting capacity factors in the high 40s or low 50’s (per cent). Nearly half of this occurs during peak load, defying most characterizations of wind as essentially an off-peak power source.

What does this mean? Greentech Media recently quoted Stephen Byrd, Morgan Stanley’s Head of North American Equity Research for Power & Utilities and Clean Energy, speaking at the Columbia Energy Symposium in late November.

“Compare that to the variable cost of a gas plant at $30 per megawatt-hour. The all-in cost to justify the construction of a new gas plant would be above $60 per megawatt-hour.” So who would build gas?

Not as many people. Citigroup recently reported that some peaking gas plants were already being replaced by solar PV plants.

Why is this so? The UBS research note says that in Colorado, local utility Xcl has just announced new contracts for solar PV plants below 6c/kWh ($60/MWh). This, UBS said, was the lowest reported solar pricing it had seen in the US, although it confirms a recent survey by the National renewable Energy Laboratory, which found pricing in that range and with no inflation kicker, meaning that the solar plants would be producing for an effective $40/MWh by the end of their contracts.

That would match even depreciated fossil fuel plants. The variable costs of gas fired plants are likely to be at least $30/MWh, and that does not include their capital costs.

This article, US Fossil Fuels Losing Out To Wind And Solar, is syndicated from Clean Technica and is posted here with permission.

About the Author

Giles ParkinsonGiles Parkinson 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.