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Salman Ghouri

Salman Ghouri

Dr. Salman Ghouri is an oil and gas industry advisor with expertise in long-term forecasting, macroeconomic analysis and market assessments.

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Is The Golden Era For Renewables Around The Corner?

In the past few years, there has been a lively debate about the increasing role of renewables at the expensive of fossil fuels, particularly in power generation.

Some say that renewables are not an existential threat and believe that they might take only a small piece of the pie by 2040, due to high costs and vital government subsidies. On the other hand, others believe that costs are declining fast, and it may take a significant share in power generation, knocking not just coal, but also natural gas off the throne.

The fact remains that things are changing quite fast due to technological advancements. The breakeven cost of various renewable energy sources has come down significantly, and wind and solar energy are leading the charge. Total global cumulative wind power capacity reached 540 GW at the end of 2017, up from 93 GW in 2007. Meanwhile, solar went up from 100 GW in 2012 to close to 405 GW in 2017, a four-fold increase. PV solar even surpassed nuclear generation capacity (403 GW in 2017).

The role of renewables is only marginal in the total energy mix, but growing fast, and in the next few decades, it is likely to become a tough competitor for oil & gas. Surely, sources that are economically viable, easily accessible and environmentally friendly will sneak their way to the top of podium by 2040.

Renewable Capacity Outperformed

In the past, the high cost of renewable energy generation constrained investments in the sector. However, due to technological advancements, the levelized cost of electricity (LCOE) reduction for PV solar and wind energy have boosted the competitiveness of these sources against well-established power generation technologies, such as coal and natural gas. In 2017, the US average LCOE without subsidy for PV without tracking was $54/MWh, with onshore wind at $51/MWh, versus gas-fired generation at $49, coal $66 and nuclear at $174/MWh. The continuous declining trend in costs of renewable energy led to an upsurge in capacity and investments.

Related: Catastrophic Cyberattacks Threaten Big Oil

In 2017, 260 GW of net power generating capacity was added. The renewable industry invested $280 billion in 2017, adding 150 GW of solar (98 GW) and wind (52 GW); both added 58 percent as compared to 28 percent of gas (38 GW) and coal (35 GW). Large hydro and nuclear respectively added 19 and 11 GW.

Inherent Problem

Despite declining LCOE, the real issue with renewables is what happens when the sun is not shining and wind is not blowing. The intermittent nature of the power flow from either solar or wind remains a problem. Therefore, renewable energy continues to rely on the grid to meet any shortfalls or peak demand.

Tesla installed the world's largest lithium-ion battery in South Australia in December 2017, which would prevent a reoccurrence of a notorious incident that took place in 2016 when the entire state lost power. The significant decline in battery prices and other cost cutting measures will further help the renewable sector to grow independent from government subsidies and without relying on grid support.

Bright Outlook For Renewable

The dominance of fossil fuels which in 2017 made up about 85 percent of the total energy mix seems to be challenged by two contenders: the penetration of electric vehicles and renewable energy sources. These together are supported by a change in mindset of the public which is increasingly concerned about greenhouse gas emissions and the environment in general. The next couple of decades will be challenging for the oil, coal, and natural gas sectors, particularly in the transport and power sectors. Coal is already in decline, and next could be natural gas.

According to a Bloomberg New Energy Finance (BNEF) study, solar and wind will gain a large share of global installed capacity by 2040 as compared to 2016. The share of both will rise immensely from 12 percent in 2016 to 46 percent in 2040 while the role of fossil fuels in power generation is expected to shrink.

Surely we cannot eliminate fossil fuels usage in our daily lives, it will remain an integral part of our life for a long time to come. Yet the golden era of renewables is just around the corner as preference and cost favor renewables over fossil fuels, a development that will improve the quality of life of many segments in society.

By Salman Ghouri for Oilprice.com

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  • Steve on May 02 2018 said:
    Intermittent sources of electricity like solar and wind have hidden costs of running backup gas turbines inefficiently, burning fuel when idling backup, more transmission lines, and much higher subsidy rates on a cost per kWh basis. These nondispatchable sources of energy are doing nothing but driving up residential utility rates in countries such as Germany, Spain, and Denmark. In the US, California likes to brag about all the wind/ solar they have installed but fail to mention they have the highest residential costs per KWH (over 50 percent higher) than most western states. Only the intermittent ( I don't call them renewables because they really aren't) energy pushers like to peddle these so called lower LCOE rates for wind and solar without considering the true cost that are borne by conventional backup and reliable power sources. I do not believe that renewables can act as spinning reserves on the grid like gas, coal, nuclear, and hydro may be able to do. Battery storage or other means such as pumped water/air add to the expense to intermittent energy sources and also makes their Energy Returned on Investment (EROI) pretty low due to this buffering effect that is needed. The quality of life we have in most developed nations are attributed to the hydrocarbon society we live in, not these intermittent sources of energy that do nothing but drive up costs and have more impact to the environment than you think.
  • Lee James on May 02 2018 said:
    Looking at the big picture -- political (national security included), economic and environmental upsides and downsides of the various energy sources -- I very much want to transition to renewable energy.
  • Paul on May 03 2018 said:
    I believe the golden age of renewables has past and the USA can look forward to dominating the energy space in the decades to come.

    We are done getting worked over by the "new world order" agenda of bleed the USA to death by one thousand cuts and shills are heading for the hills.

    Natural gas car is far more friendly to the environment than a lithium battery which is very expensive to dispose of properly and high levels of CO2 are emitted when the lithium is mined.
  • Rich on May 03 2018 said:
    No affordable solutions for the intermittency of wind and solar energy going into the future forever?

    1. I wonder how many comments were posted from the latest version of a smart phone. The iPhone was launched in 2007.

    2. A 5/1/2018 UtilityDive.com post headlined “100-Hour storage? DOE launches $30M program to explore new technologies”

    3. John F. Kennedy at Rice Stadium in Houston on September 12, 1962: “We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win, and the others, too.”
  • David on May 04 2018 said:
    As I've said before, the quality of life developed nations have become accustomed to is not derived from hydrocarbons specifically but it was made possible through technology in general and the Renaissance/Enlightenment/Scientific frame of mind that provided the tools necessary for the industrial revolution to become a reality. Sticking to fossil fuels for the rest of the foreseeable future while ignoring new and more efficient technologies will not maintain a high quality of life and in fact will likely lower this for the majority of people during the second half of this century as negative effects of hydrocarbon use come into full swing in the coming decades. Renewables, while currently still quite expensive as a complete system with storage, will almost certainly become capable of replacing fossil fuels in most areas sometime during the late 20s and early 30s. As they mature, governments will feel more confident in them and will likely be more willing to reflect external costs in the price of fossil fuels (we can probably expect severe government as well as litigation actions against fossil fuel companies sometime in the second half of the 20s). This in turn will speed up the transition.

    There are plenty of emerging commercial technologies that improve or fix existing battery issues (for instance vanadium redox flow batteries have low toxicity and none of the safety issues that other potential grid storage tech has, my guess is that they will become a preferred solution for grid storage as the technology matures further, assuming that no cleaner/safer alternative is found for traditional rechargeable batteries in the grid storage industry). As I've also mentioned before, there are other technologies appearing on the market now like Power to X (essentially Carbon Capture and Usage in many forms) which will further skew the situation in favor of renewables towards the late 20s and have the potential to allow for all year round energy supply without fossil fuels (substituting with synthetic fuels where necessary). Also, higher energy prices aren't necessarily a bad thing since it drives the population towards purchasing more efficient, higher quality equipment. It is by no means a sign of lower quality of life because these price increases are more than manageable in developed nations, the prices would have to be orders of magnitude higher than they are in order to have any seriously detrimental effect on quality of life in these countries.

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