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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Renewables Remain ‘Cheap’ Despite Supply Chain Chaos

  • High hydrocarbon prices make renewables more attractive for power generation.
  • LCOE report: “wind and PV generation costs remain lower than fossil fuel alternatives.
  • Rising costs of hydrocarbons have outpaced growing material and installation costs for renewables.

With the energy transition in full swing, new energy research provider BloombergNEF estimates that the global transition will require ~$173 trillion in energy supply and infrastructure investment over the next three decades, with renewable energy expected to provide 85% of our energy needs by 2050. BNEF projects that by 2030, consumption of lithium and nickel by the battery sector will be at least 5x current levels. Meanwhile, demand for cobalt, used in many battery types, will jump by about 70%. Diverse EV and battery commodities such as copper, manganese, iron, phosphorus, and graphite--all of which are needed in clean energy technologies and are required to expand electricity grids--will see sharp spikes in demand. 

Unfortunately, rising prices of the commodities needed for renewable energy as well as massive supply chain disruptions have been increasing the costs of setting up new green power projects, which could slow down the pace of the transition. 

This trend is problematic for the simple reason that falling costs have been the major driving force for the clean energy boom.

Over the past decade, the price of solar electricity dropped 89%, while the price of onshore wind fell by 70%.

Meanwhile, rapidly falling EV battery prices have played a big role in helping electric vehicles go mainstream. As per Bloomberg, over the past decade, EV battery prices have fallen from almost $1,200 per kilowatt-hour to just $137/kWh in 2020. For an EV with a 50 kWh battery pack, that adds up to savings of more than $43,000 in real terms.

But here’s the kicker: today’s stratospheric gas and coal prices have helped renewables retain their crown as the cheapest option for new power generation across the globe--despite rising equipment and materials costs.

Related: World Sees First Global Energy Shock: World Energy Council

According to Spanish developer Acciona Energia via Energy Intelligence, ‘‘the appetite for renewables remains strong as they are "massively" more competitive than fossil fuels.’’

Cheaper than oil and gas

In its lowest Energy Cost Report, Energy Intelligence’s senior reporter Philippe Roos has analyzed the the cost of generating electricity, also known as levelized cost of energy (LCOE), of conventional and renewable forms of electricity generation in five regions: the U.S., Western Europe, Japan, the Mideast and developing Asia. The data, which also include break-even prices for oil, gas and coal in the Mideast and developing Asia, is based on Energy Intelligence’s proprietary LCOE model. 

The EI study reveals that renewables have probably overtaken gas permanently on cost-effectiveness, with the race for lowest cost remaining mostly between solar photovoltaic (PV) and onshore wind. This trend rings true even in Japan, where the scarcity of real estate handicaps land-intensive renewables, onshore wind beats coal and PV displaces gas.

Legend:

CCGT: combined-cycle gas turbines 

OCGT: open-cycle gas-turbine

CSP: concentrated solar power

According to the LCOE report, “wind and PV generation costs remain lower than fossil fuel alternatives, especially with current high gas and coal prices”, and with supply chain issues troubling both sectors equally, renewable technologies are still the cheapest.  

And even if gas prices fall, it will at this point only partly bring fossil fuels closer to par with renewables. That scenario, however, doesn’t look likely at this time. 

But current indications are that high fossil fuel prices are here for the long-haul: TotalEnergies (NYSE:TTE) CEO Patrick Pouyanne recently said that the company might change its long-term gas price assumption in Europe from around $5/MMBtu to around $10/MMBtu.

By Alex Kimani for Oilprice.com

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  • Bill Tomlinson on July 29 2022 said:
    Power generation costs (stated in the table forming part of this post) are totally misleading.

    Most obviously, the sun does not shine at night. That means that any electricity required at night must be generated during the day, and stored. The "worst case" must be catered for.

    In the high latitudes - where much of the First World's population lives - the "worst case" is around Xmas time, when each day has roughly 6 hours of daylight and 18 hours of night.

    That implies that the installed capacity must be 4x what would be required for a "conventional" power station.

    The skies are mostly overcast around Xmas time, so the solar cells will generate only about half of their nominal capability. Therefore the installed capacity must be not 4x what would be required for a "conventional" power station, but 8x.

    Then there is the cost of the batteries; the cost of storing a kwh is about the same as the cost of a solar panel to generate it. The foregoing implies that this would mean another 3x the raw generation cost.

    But batteries have a limited life - usually around 1000 charge/discharge cycles, which implies about three years assuming a once-per-day charge/discharge. Assuming that the solar cells have a life of 21 years, the battery cost would be 7x that of the solar cells.

    All the foregoing implies that the true cost of generating electricity by solar cells is about ((2x3) + 7 =) 13x that of a "conventional" power station.

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