Bloomberg is now reporting that solar energy is cheaper than coal, and could become the lowest form of energy within a decade. Economies of scale are causing solar to drop from an average of $1.14 a watt all the way to 0.73 cents per watt by 2025.
Several agencies, from the U.S. Department of Energy’s National Renewable Energy Lab to the International Energy Agency, all confirm this rapid decline in costs. Capacity for solar is doubling, causing the supply chain to be lower for bank loan premiums and manufacturing capacity in the solar energy space. Now with Tesla's gigafactory opening the cost of batteries is also expected to drop for electric vehicles and home battery systems.
China also plans to invest over $360 billion on renewable energy and fuels to help decrease the smog issues the country is currently experiencing. Unsafe, coal-fired power plants are currently suffocating the country’s air supply.
We could be entering a new era in energy, and an era renewable investors and environmental advocates have been touting this century. Unfortunately, there are glaring weaknesses being over looked. For renewables to truly breakthrough into a low-cost, scalable energy along the lines of coal, oil, and natural gas numerous obstacles such as costs, back-up generation power, storage, and grid modernization will need to be solved.
Yes, costs are technically going down for solar and wind, but can that truly be translated onto a larger scale? While costs for manufacturing and kilowatts per hour are dropping, the final costs when it comes to large-scale renewables are more nuanced. For this reason, despite the need for clean fuel in both emerging and developed economies, renewable market share remains well below that of conventional forms of energy. The BP Statistical Review of Global Energy in 2015 showed renewables provided only 2.4 percent of total worldwide energy needs, hydroelectric power generated 6.8 percent and nuclear came in at 4.4 percent. Moreover, no matter how much renewables are touted as a replacement for fossil fuels, and even with positive economies of scale, it is unlikely that they will overtake coal, oil and natural gas in the near future.
While hydroelectric is not impacted by the intermittency issues of wind and solar, the process of damning water for electric use can run into serious environmental issues. Hydroelectric is actually the most reliable renewable, but it still has tremendous issues. Once natural waterways are diverted for energy, whole towns, valleys and mountain ranges can be significantly impacted. In this way, hydroelectric and nuclear are similar, because they are two clean sources of energy with the potential for large social and environmental impacts.
If the sun isn’t shining and the wind isn’t blowing then solar and wind become difficult to use without fossil fuels – particularly natural gas and coal-fired power plants – backing them up. Batteries have not caught up to enhance storage for renewables, and they aren’t productive enough for entire cities, countries, and nations.
When looking at the total cost of renewables versus coal, natural gas, and oil there really isn’t a comparison in the near-term because wind and solar can only generate intermittent electricity, while nuclear and hydroelectric energy face significant social and environmental resistance. Fossil fuels can be run without backup supplies, and factoring in those expenses – even with renewable technology having achieved significant cost reductions – fossil fuels are the most economical, scalable choice. Total costs, or levelized costs, still make renewable energy underproductive as a wide-scale fuel for developed, emerging and third world countries. Related: The Top 5 Places To Work In U.S. Oil And Gas
While mature economies such as Germany and California have trialed large-scale renewables successfully, these successes weren’t achieved without fossil fuels backing them up. The Energy Information Administration's Annual Energy Outlook 2017 to 2050 has renewables at only 18-26 percent penetration by 2050. Electric vehicles currently have 1 percent of the market and are projected to have only gained 6 percent by 2040.
Energy storage and grid modernization are separate issues, yet linked together in many ways. How energy is stored from fluctuating renewable sources (wind and solar) is important for accommodating, “multiple grid services, including spinning reserve and renewables integration.” To improve the problem of intermittent generation for resources such as wind and solar the EIA recommends that companies:
“Examine the potential for transmission (grid) enhancements to mitigate regional effects of high levels of wind and solar generation while developing higher resolution time-of-day and seasonal value and operational impact of wind.”
Further, the EIA sees utility rate structure for different levels of photovoltaic solar generation being needed to control costs for consumers and industry when using renewable energy. What the EIA is saying is that renewables fluctuate in power generation based upon different weather patterns, which causes the grid to fluctuate. These upward grid spikes are then passed on in higher electricity costs to utility customers. It is one of the reasons California has some of the highest energy costs in the United States due to its heavy reliance on renewable energy. Related: The Math Doesn’t Add Up For The OPEC Deal To Work
The most important component in the entire process of renewables overtaking fossil fuels for a cleaner future is grid modernization. According to T. Boone Pickens, “the electrical grid of the future will have to be built,” for renewable energy to overcome the above-mentioned hurdles.
Renewable energy has incredible potential but, until power grids are modernized, they will lag behind fossil fuels. The current electric grids can’t handle millions of electric vehicles and fluctuating, spiked energy from wind and solar nor does it have the ability to be flexible the way a natural gas power plant is at this time. The best power plants for energy efficiency and lowering carbon emissions while keeping costs reasonable are natural gas plants. Natural gas-fired power plants are the biggest reason coal is losing market share in the United States.
Most individuals want renewables to work on a large-scale basis to provide cleaner air, water and an overall healthier environment. But instead of renewables like electric vehicles taking on a fad-like quality without the technology having caught up to the hype, energy policy makers need to look at the facts, and not the emotions. Let’s not pit renewables against fossil fuels, but look to incorporate the different energy sources into what’s best for the U.S. and the world community.
By Todd Royal for Oilprice.com
More Top Reads From Oilprice.com:
- Oil Discoveries To Rebound From Rock Bottom
- Four Factors Fueling Canada’s Oil Recovery
- SpaceX’s Next Act Is A Critical One