Is a solar supply glut on hand? Not exactly, but oil’s multi-month slide has largely overshadowed the sector’s emergent capacity. Nowhere is that more apparent than in the state of California, where the world’s largest photovoltaic power station is now online. Still, renewables did not emerge unscathed from the aftermath of OPEC’s decision to stand firm on production. Formerly rosy outlooks now take on an air of uncertainty as renewables growth looks to avoid becoming a casualty of an era of cheap oil and gas.
Late last month, MidAmerican Solar’s Topaz solar farm reached full capacity to little fanfare. The $2.5 billion, 550-megawatt (MW) plant is now the world’s largest and will power 160,000 California homes. Throughout the United States photovoltaic installations topped one gigawatt (GW) for the third consecutive quarter and total growth in 2014 is expected to best 2013’s record level by 36 percent. In all, solar accounted for 53 percent of new electric capacity through the first six months of 2014. Supply is booming in Europe as well and 81.5 GW were installed in 2013 – up 900 percent since 2010.
Global renewable electricity production by region, historical and projected
Globally, renewables – biomass, geothermal, hydroelectric, solar, and wind – continue to be the fastest growing power source. Declines in hydroelectric power have been countered by greater growth in wind and solar. By 2020, the International Energy Agency (IEA) believes global renewable electricity generation will surpass natural gas as the second most important global electricity source, behind coal. Today, the National Renewable Energy Laboratory estimates that renewable energy accounts for 23 percent of all electricity generation worldwide. However, this figure is a bit misleading.
Since 2003, the share of renewables in global electricity generation has remained relatively flat compared to the more linear growth of renewable generation capacity. Simply put, hydrocarbons aren’t leaving. In fact, fossil fuels growth in electricity generation in both developed and developing nations – approximately 10 percent since 2008 –has largely offset the remarkable renewable growth to date. In the United States, the shale gas revolution and more stringent coal regulations have led to an increased share of natural gas in electricity generation – 21 percent since 2008.
Natural gas prices at Henry Hub have rebounded slightly after bottoming out in 2012, but oil’s slide continues and analysts and insiders agree high volatility and low prices are here to stay – at least in the short to medium-term. Is it enough to stunt renewables’ bright future? Not likely.
The transportation sector will see few changes; petroleum is king, cheap or not. Biofuels provide roughly three percent of transport fuel today and transportation energy use and liquid fuel sources are projected to remain relatively unchanged until 2030. More drama is anticipated in the power sector, where all fuels compete.
Prices on Henry Hub are expected to be down approximately 14 percent in 2015 and as a result the Energy Information Administration predicts natural gas consumption in the power sector will increase by three percent. Over the same period however, renewables are up nearly six percent. The prevailing notion that renewables are not cost competitive is increasingly old-fashioned.
Utility-scale solar levelized cost of investment (LCOE) compared to gas-fired power
Source: Citi Research
Since 2012, the average price of a completed commercial photovoltaic project fell 45 percent and continues to fall faster than expected. In the US, Deutsche Bank reports that solar will reach price parity with conventional electricity in 47 states by 2016. By 2020, utility-scale solar will be competitive with gas-fired power at a wide range of natural gas prices and in all key markets, including low-insolation regions. Wind power is already there. The total LCOE for onshore wind is cheaper than that of conventional coal as well as natural gas-fired plants with carbon capture and storage. The biggest threat to renewables growth is not the price of oil or gas, but instead policy and regulatory measures.
The IEA expects solar to be the top source of electricity by 2050, but in the more immediate future the agency foresees a slowdown in renewables growth amid mounting policy uncertainty. With the United States’ solar investment tax credit set to expire in 2016, states taking matters into their own hands, and the EU’s own unclear renewable policy future post-2020, investors will have trouble guaranteeing an equitable and predictable return.
By Colin Chilcoat of Oilprice.com
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