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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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Solar, Wind Are Now Cheaper Than Coal In Most Of The World

The world’s premiere authority on global warming, the Intergovernmental Panel on Climate Change (or IPCC for short), announced in an alarming report at the end of last year that the world is running out of time to curb carbon dioxide emissions. In fact, the data they collected found that in order to keep global temperatures from rising more than 1.5 degrees centigrade over pre-industrial averages within this century (the goal set by the Paris climate agreement), the entire world would have to transition to 100 percent clean energy by the middle of the century. This, it goes without saying, is a lofty goal. But up until now, clean energies just haven’t been able to compete in a market flooded with cheap fossil fuels. 

Low- and no-carbon renewable energies like solar and wind power have long been subsidized by governments around the world because while they hold great promise for a clear, more sustainable energy future, they just couldn’t compete with natural gas, coal, and oil when it comes to the bottom line. But now, what was once so prohibitively expensive that governments needed to give financial incentive for these green energy technologies to be adopted at any serious scale, have become extremely cheap--even with no government subsidies at all.

This week Bloomberg reported on the once unthinkable phenomena of solar and wind subsidies disappearing across the world because the industry has outgrown the need for them. “On sun-drenched fields across Spain and Italy, developers are building solar farms without subsidies or tax-breaks, betting they can profit without them. In China, the government plans to stop financially supporting new wind farms. And in the U.S., developers are signing shorter sales contracts, opting to depend on competitive markets for revenue once the agreements expire,” Bloomberg said

Perhaps most importantly, the article goes on to point out, these developments of self-sufficiency and profitability in the renewable energies sector “have profound implications for the push to phase out fossil fuels and slow the onset of climate change.” The importance of our global energy production and consumption in terms of the global community’s impact on greenhouse gas emissions and climate change can’t be overstated. The Bloomberg report continues: “Electricity generation and heating account for 25% of global greenhouse gases. As wind and solar demonstrate they can compete on their own against coal- and natural gas-fired plants, the economic and political arguments in favor of carbon-free power become harder and harder to refute.” Related: Traders Scramble To Find ‘Plan B’ As Sanctions Ground Chinese Oil Tankers

The reason that wind and solar have outgrown government subsidy programs is not because they never needed them at all--to the contrary, the fact that financial state support of renewables is no longer needed shows that the subsidies did exactly what they were supposed to. They allowed renewables, a young innovative sector, to get past the often-fatal initial stages of a new market sector where the prohibitively expensive first steps of scaling up an industry can often crush a company before it truly begins to function and then stabilize. Now, as JMP Securities equity analyst Joe Osha told reporters, “the training wheels are off.” 

Wind and solar have successfully been able to expand to a level where they can mass-market and standardize, meaning costs go down and efficiency rises, especially as solar and wind technologies become more and more efficient. According to data from BloombergNEF, wind power now costs half of what it did in 2010, and in the same period of time, the cost of solar has plummeted by a jaw-dropping 85 percent, making wind and solar cheaper than building a new coal or gas plant in most of the world.

Now, we just need wind and solar to be more widely adopted. Much, much more widely adopted. Sales are already up, but renewables still account for a very slim proportion of global energy mixes. The profits are there, and the need is most certainly there, but the status quo can be hard to shake. 

There is also the issue of variability with wind and solar--if the wind doesn’t blow or the sun doesn’t shine, production dips, but demand for energy does not. Luckily, there are solutions to this problem, and the market for energy storage, which would help provide a steady energy flow to the grid, is growing rapidly as well. We have a long, long way to go towards reaching the IPCC’s deadline of 100 percent renewables by the middle of the century, but the goal is now more attainable than ever. 

By Haley Zaremba for Oilprice.com

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  • Mamdouh Salameh on September 28 2019 said:
    If that is the case, then why are renewables lagging behind hydrocarbons in electricity generations, transport and water desalination.

    The answer is to be found in four pivotal principles. The first is that there will be no post-oil era throughout the 21st century and probably far beyond. Oil will continue to reign supreme all through.

    The second principle is that there will be no peak oil demand either. While an increasing number of electric vehicles (EVs) on the roads coupled with government environmental legislation could decelerate the demand for oil, EVs could never replace oil in global transport throughout the 21st century and far beyond.

    The third principle is that the notion of imminent energy transition is a myth. In fact, the percentage of fossil fuels in the world’s energy mix—coal, oil and natural gas—is still lingering well above 80%, a figure that has changed little in 30 years. Hydrocarbons accounted for 84.7% of global primary energy consumption in 2018 compared with 4% for renewables. That remains so despite being challenged by serious environmental policies and despite a global expenditure of $ 3.0 trillion on renewable energy during the last decade. This is a hefty price to pay just to gain only a percentage point of market share from coal.

    The fourth principle is business opportunities. While global investment in renewables is huge, it pales in size when compared with that in oil and gas exploration and production, refining and petrochemicals. The slower pace of oil majors toward alternative energies is due to two key reasons. First, they all say that oil and gas will continue to be needed well into the foreseeable future. And second, and probably much more important, is that financial returns from renewables are nothing compared to the huge bonanzas oil firms are accustomed to rake in when oil prices rise.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • James Hilden-Minton on September 28 2019 said:
    Becoming cost competitive with fossil fuels has been a moving target. Gas in the US has trended down for $5/mmBtu in 2014 to less than $2.5/mmBtu in 2019. This has applied considerable price pressure on coal as well.

    The problem going forward for gas is that it must continue to compete directly with wind-solar-batteries to grow or even just retain market share. WSB is discovering the synergies of hybridization too. So WSB hybrids may continue to draw down PPA prices 15% or more per year, while becoming highly dispatchable and quite capable of delivering power "when the wind doesn't blow and the sun doesn't shine." (Journalists would be well served to drop that tired cliche.)

    So to remain competitive with WSB hybrids natural gas will need to become radically cheaper than $2.5/mmBtu. Even going to $0/mmBtu will eventually not be competitive. The problem is that you've got seriously declining capex in WSB that eventually undercuts the maintenance and non-fuel opex of existing gas generators.

    For example, this has been the challenge has been the challenge of nuclear competiting with gas. The fuel cost of nuclear is very small, but that does not make up for all the other maintenance and non-fuel opex of nuclear. Even if nuclear fuel were zero cost, it would not improve the economic much.

    So too coal and gas will find that no matter how low fuel prices decline, their generators just can't compete with WSB. Gas and other fuels may be needed as backup resources for quite a while, but the issue here is coal and gas losing share of the power market year after year. Holding market share will be a losing battle, so producers may as well hold back enough supply that prices are high enough for an attractive profit. It's better to be profitable and lose share than to keeps flooding the market so that you lose market share and lose money doing so.
  • rudolf d'Ecofacista on September 29 2019 said:
    that is great....to warm ourselves at night when the wind doesn't from imaginary electricity.......
  • Lee James on September 29 2019 said:
    Good article; puts wind and solar subsidies into perspective. The "training wheels" are off. Maybe the subsidies can be off for fossil fuels too?
  • Brian Kullman on October 09 2019 said:
    Decades ago federal overseers of electricity generation/transmission declared that coal fired power plants had to built close to the markets they served. I do not know the exact reasoning, but I assume that it had to do with minimizing the need for transmission trunk lines, and to keep well-paying unionized jobs in the same labor markets where the electricity was consumed.

    This decision was a big deal for Western coal. The cost to transport coal from mines in the Powder River Basin to power plants in the midwest and southwest far exceeds to cost to mine the coal. Most of the delivered cost of Western coal is delivery.

    It is technically possible to produce electricity near the mines and ship the electricity to the cities which need it. But that was not permitted.

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