Renewables at ‘pinch point’ as hard economics trumps green idealism

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Yet another major investment bank has concluded that renewable energy technologies such as wind and solar are now competing with fossil fuels in many parts of the world, and will play a critical role in helping meet ambitious climate targets to be negotiated in Paris later this year.

HSBC, in a research report entitled “The Rise of Renewables,” says renewable energy is now becoming mainstream, boosted by a shift away from “green idealism” – that underpinned many over-generous and badly managed subsidy schemes – to “hard economics”, where the costs of the technology will win out over fossil fuels.

The report is a follow-up to its recent assessment that fossil fuels investments risk being stranded as a result of climate change policies, changing economics, including plunging commodity prices, and the impact of new technologies such as solar and storage.

“The two key drivers of a low-carbon future are energy efficiency and a scale-up of renewable energy,” the HSBC analysts write. They say the fall in the oil price was perceived to be bad for the scale-up of renewables but, like Citigroup analysts and others, conclude this will have little impact.

The report also says renewables should get a further boost from action resulting from the Paris climate change talks, because a transition to gas will simply not meet long-term temperature targets.

“In December, we expect a universal climate agreement to be signed in Paris as part of the drive to reduce CO2.

“Cleaner energy is fundamental to a low-carbon economy and while gas is cleaner than coal in power generation, our analysis shows that a shift to gas alone will not deliver the CO2 reductions consistent with keeping temperatures down. This supports the long-term case for renewables.” The thick black line in the graph below indicates where emissions will trend in the so-called “gas transition”.

hsbc trajectoriesIn addition, HSBC said China was moving its energy mix away from coal to improve air quality. In the US, 30 states have mandated targets known as Renewable Portfolio Standards (RPS), and EU policy is currently driven by the 20/20/20 climate and energy package (which targets 20% of renewables as part of the total energy mix by 2020).

HSBC says the deployment of renewables is being helped by reduced technology costs, and more funding sources as  the risks around renewables being better understood by investors and return criteria have fallen.

HSBC costsOn costs, this graph illustrates the falls achieved in recent years. “We expect costs to fall further thanks to new design concepts, smarter technology processing gains and economies of scale,” it says. Much of this will come from efficiency gains in solar modules and wind turbines.

Large corporations have also stepped up investments in renewable power in an attempt to reduce emissions (Apple, Google, IKEA and others all aim for 100 per cent renewables, and others such as Dow Chemicals are buying renewable energy to reduce costs).

Institutional funds attracted by the stable and predictable cash flows are also increasing their investments in renewable energy assets, with green bonds emerging as an attractive way to gain exposure to renewables. So-called “YieldCos” are also attracting investors in the equity markets, particularly those looking for yield in a low interest rate environment.

Storage, although still at an early stage, would be an important driver, and residential storage and solar should drive solar demand in the next 5-10 years as it” transforms the centralised utility power supply model.” A carbon price in many economies would also penalise carbon-intensive power technologies in favour of low-carbon technologies.

HSBC renewables growth

HSBC noted that the growth of renewables had proven remarkably resilient to market shocks and policy changes over the past decade. Even though global investment in 2014 was below its record high of 2011, it was now getting more “bang for its buck” because of the falling costs.

In 2009, global installations were 57GW, and by 2014 new global installations had doubled again to 110GW.  “Arguably renewables have become an increasingly mainstream power technology,” the HSBC analysts write.

HSBC said that an element of idealism or ‘green ambition’ spurred the first wave of renewables growth (wind in the 1990s and solar from 2005), which was driven by ambitious targets announced in the EU and US.

But now it sees a “fundamental policy shift” away from feed-in tariffs to auction systems, to drive the next state of growth in renewables. This was especially the case in emerging markets, such as South Africa, India, Brazil, but was also being taken up increasingly in developed countries.

hsbc auctions

Germany has just held an auction for solar projects and Spain is about to hold an auction for 500MW of wind. The UK also auctions renewable energy capacity. In Australia, the ACT government recently completed an auction for 200MW of wind projects and has previously completed auctions for 40W of solar.  

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  • Ken Dyer

    There is no doubt that the business models, the technologies and the product architectures of renewable energy are disrupting, with increasing speed, the centralised, extraction resource based energy sources of oil, gas and particularly coal.

    The Abbott Government has nailed its black coal flag to the mast of SS Barnacle as it steams into an uncertain future, clouds of black stinking polluting smoke poring from its rusted and dirty funnels, as it wastes more money with the failing Emissions “Reduction” Fund. By 2016, the disruption will continue; clean energy will have enjoyed another year of exponential growth, and the path will be clear to removing the taxpayer funded subsidies that the fossil fuel has subsisted on for so long.

    The way is now clear for Labor and the Greens, if the political will is there, to seize clean energy architecture as its own, an architecture that will be distributed, mobile, intelligent and participatory. Everybody’s pocket will benefit from building smaller, distributed power plants everywhere. It has started in Australia with a large penetration of rooftop solar PV. It is time for Australia to once again provide leadership to the World in renewable energy technology and practice, and reject once and for all the moribund business practices that epitomise the obsolete fossil fuel energy industries that prop up the Abbott Government.

    • john

      Ken we usually do the science but never deliver mate

      • Ken Dyer

        Then we must elect politicians that do deliver what they promise, or is that oxymoronic?

        • john

          It is possible that the solution is to write down the value of the distribution network and yes the generators and they have to put up with the situation they are in; a future they did not look at; because of perhaps bad business advice or more likely no idea about RE at all a more likely sense of their vision.

          • John Knox

            Ah, but if the generators did their due diligence properly, they would have known that there was a very good chance their investment would become stranded. To cry foul now is to try to milk the public for their gamble we wouldn’t act on climate change…

    • Alastair Leith

      But SS Lomborg cost benefit analysis trickery is steaming in over the horizon to save SS Barnacle.

      • Ken Dyer

        Alastair, who do you believe.
        This from the Copenhagen consensus papers:
        “Renewable energy and nuclear power are projected to be the
        fastest-growing sources to 2035, each increasing at 2.7% annually, but
        fossil fuels continue to dominate, with natural gas growing faster than
        This from Tony Seba Harvard University:
        “The age of centralised, command and control, extraction-resource- based (coal,gas,uranium,oil) will not end because we run ot of these substances. It will end because these energy sources and the business models they employ, and the products that sustain them will be disrupted by superior technologies, sucah as wind, solar, electric vehicles. These will sweep away the energy industry of today.”
        Now a fact.

        Germany has just approved bids for large scale solar to be delivered at a fixed cost equivalent to 10 Australian cents a kilowatt.

        Unsubsidised solar is almost at grid parity with coal, gas and nuclear. In other words, the SS Lomborg is about to sink, the Copenhagen Consensus did float one smart recommendation, and that was to remove taxpayer subsidies from the coal industry. That should hasten the end of coal.

        The other thing that Lomborg, Hunt and Abbott and Shorten are underestimating is the sheer speed of the disruption that is about to hit. They are about have their Kodak moment.

        • Alastair Leith

          #irony, Ken

  • David McKay

    It will come at increasing pace. The new energy landscape will also bring added benefits – jobs, improved air quality & therefore health outcomes, reduced need for investment in infrastructure, etc.
    The transition will take some time & in the meantime, Abbott will have to explain ever rising power bills, under the current fossil fuel dominated generation model, with no carbon tax to blame.
    I have heard that Labour may be looking to step away from an ETS, in favour of a dramatically expanded RET with other smaller “direct action” measures. This could be clever policy (& may work) as it takes away any chance of Abbott regurgitating his “axe the tax” slogans. There is certainly some room for leadership – in all policy areas.

    • Alastair Leith

      Problem is you need both carrot (RET and/or FiTs and/or Reverse auctions for CfDs) and stick (Price on Carbon and realistic air quality legislation that prices externalities in health effects). Without the stick, say an ETS, or as Obama has been forced to do, toughening Air Quality Laws which are already tougher than Australian law it’s will be extremely to get old coal plants shuttered. in a wholesale market with falling demand that makes it hard for renewables. The old utilities are no doubt looking hopefully to the coming EV disruption which could boost national demand somewhat, but it also brings disruption in domestic scale energy storage which hurts them more.

  • Jon

    Unfortunately hard economics also trumps future investment in large scale renewables in Australia, with falling demand (driven by small scale renewables and energy efficiency), a massive over supply of capacity, and wholesale market prices around $30/MWh. There is no incentive (or stick) to pull old dirty capacity out of the market, nor is there any reason to expect that anyone will underwrite projects with long term offtake contracts as the energy market future is so uncertain. Even if we get RET certainty at 41TWh, its hard to see financiers backing projects without a PPA, although there may be some willing to roll the dice and go merchant.

    Hard Economics indeed!

    • john

      You are correct Australia has too much capacity.
      There is no short term way out of this situation.
      Generators are just sitting there idling along waiting for the evening peak which well be sent down by home storage very shortly we really have a problem with over capitalise generating capacity.
      In some countries the generators are asking for payment of capacity ability are we going down this path I ask?

      • Jon

        They did this in WA in order to ensure that there was enough incentive to provide capacity for their relatively small market. However in reality it has been a disaster as there is now massive over supply there too with some generators getting paid but never turning on. Worse still there is a huge amount of contracted demand management which also gets the benefit but is rarely if ever tested for real availability. The result has been huge market costs which have been absorbed by the government due to retail price caps.

  • bedlam bay

    The public has been dudded by the utilities for a long time. Their business model is under threat and should not be propped by Team Abbott who have defrauded the public.

    • Exovandal

      So you use 100% renewables in your house. Tell me how you store your energy for use after the sun sets?

      • whatagreenidea

        In the case of Apple they supplement solar with Biogas fuel cells, geothermal or micro hydro.

      • A Wall

        You’ve got it backwards. For decades society has been sold off peak power cheaply and told to use it because coal generators can’t quickly switch off. This can just as easily be turned around such that power is cheaper in the day time. This price signal would quickly result in a massive reduction in the amount of power consumed at night time.

        In answer to your question, my house generally uses about 0.5 kWh between sundown and sunrise (from the perspective of my 2 kW North-facing PV system), and I think this can be got lower still.

        • Exovandal

          so you are completely disconnected from the grid then?

          • A Wall

            What’s the relevance of that question, troll?

          • Exovandal

            If renewables are a viable alternative to fossil fuels, why aren’t people disconnecting from the fossil fuel grid? Seems relevant to me, I keep hearing about how renewables are a viable alternative, but I can find very few people that have completely disconnected from the grid. I researched what it would cost to remove myself from the grid with solar and batteries. It was going to cost me in excess of $35k and the ongoing costs would vary depending on battery life, but 3 years seems to be about the most I can expect from them. The cost made it prohibitive for me to disconnect from the grid.

          • A Wall

            Whether or not to go off-grid is an entirely separate question from whether renewables stack up.

            There are huge network benefits of being attached to a grid independent of how the power is generated. If I run power totally off-grid then I need to have enough battery storage to provide for the one day per year when I use lots of power. If I share storage with 1000 or 1000000 other homes, then there’s built-in redundancy (ie. you don’t need double the storage for two homes who are sharing).

            Also, the grid is not a “fossil fuel grid” — the entire point of this artlcle is that renewables can and will power the grid.

            ps. I called you a troll because your questions kept shifting the goal-posts, which is classic troll behaviour. If I’m wrong, I apologise. It’s not clear to me yet if I’m wrong or not.

          • Exovandal

            I understand the economies of scale with a grid. What I don’t get is how renewables will replace fossil fuels in supplying power to that grid? Every model I have seen shows they need backup generators, generally gas. Why waste resources building extra generators when gas alone will do the job? It just isn’t cost effective yet. The only cheap renewable is hydro and there is no way the Greens are going to allow us to build more dams in Australia. The Germans have been the leaders in renewable usage, yet they are building more coal fired stations to give their network the base load power it needs. From what I have researched, renewables just don’t have the necessary storage to economically replace fossil fueled generators yet.

          • OK, you starting to sound mighty like a troll. South Australia now has more than 40% renewables. Any backup built for it? No, back up is actually being closed. German coal generation is now at second lowest since 1990. Most coal generators want to close. Clearly you haven’t done research at all.

          • dhm60

            You are correct about not having the necessary storage to economically replace old fossil fuel generators YET. However the following organizations have done in-depth LCOEs on various energy sources and found that in many countries solar is at or near grid parity – before a social/health cost of around $30/tonne of Carbon (Ref: Epstein – is added to coal generation: NREL, McKinsey, HSBC, UBS, BNEF, Deutsche Bank, Pew, Black & Veatch, Wood & McKenzie, IRENA, Citigroup, Fraunhofer and IEA. Plenty of links available but here is one of my favourites, Black & Veatch’s:

            Two points:
            1. Solar + battery LCOE is both wholesale and (mostly) retail price as generator self-users do not have to add network charges – currently running at about 19c/kWh in NSW.
            2. All analysis points to storage battery costs (currently high) will follow the same trajectory as other solar hardware – which are now 20% of its cost just 5 years ago.

          • It would have to be some pretty poor planning and maintenance to have to replace your batteries after just 3 years.
            If discharge is correctly managed and you make some minor modifiications to minimise wasted enrgy, then there is no reason that you should not be able to run an old technology, flooded battery bank for ten to fifteen years. Newer technologies, like the bank proposed by Elon Musk may require less maintenance and allow deeper discharge while still giving you many years of good service. In the stationary vibration free environment of the home, battery life should be far longer than in the Tesla, and they are already offering lifetime replacement warranties on those battery banks.

            The reality is that disconnecting from the grid should be the last thing the incumbents want from their customers. That will leave them with a smaller pool of customers to pay off their gold plated networks.
            Transitioning to cost effective large scale wind, as is happening in SA will allow them to continue to compete and thrive.
            Mass defection, that will be forced on the user because of intransigent policy decisions will ultimately kill the utilities because their only customers will be the poor, that are unable to go off grid unaided and businesses where the demand makes going off grid prohibitive. The incumbents will not be able to raise the prices sufficiently to survive or the businesses may find the costs of going off grid viable. The incumbents will ultimately be the losers.

          • Hermanoel

            Renewables as a viable alternative has nothing to see with being out or ongrid. The electric transmision system is still the same, only the generators will change. Renewables does not necessarily means “outgrid” at all.

      • My net metered rooftop PV system exports double what I use. So yes I generate sufficient to cover all my needs and then some. This means that many of my neighbours are purchasing renewable energy even though their bill may not display that.
        The actual Solar day is extended becasue this country stretches across multiple time zones, so although the tapers off when the sun sets, renewable supply does not stop. Add to this Wind, Wave and Hydro with electric vehicle and the emerging battery storage options and it is easy to see that the old baseload trope is no longer a valid argument.
        The progress is unstoppable. It have have been slowed by the political climate, but the future is undeniably green.

        • Exovandal

          You may be creating more power than you use, but you aren’t creating power at all times when you need it. Your neighbors may well be using your solar power but you are being paid more for that power than the cost of power generated by the electrical company, which forces up the cost of power to others, that isn’t sustainable, as you say, it will only be the poor that suffer.
          I am not sure how the political climate has an effect on renewable energy use. IF it is cost effective it would be widely used.

          • You seem to be following the talking points quite closely. Do you have a laminated cheat sheet in front of you?
            First, I am being paid at the lowest spot price for energy generation during the day. That means that the utility selling the unit of electricity my system has produced is making as much, if not more each unit than they do on the unit of electricity purchased from the generator. Your first argument is invalid.
            Yes there are a number of systems that have wonderful feed in tariffs. Those early adopters deserve to be rewarded. That advantage is due to fall by the wayside as the gross feed in tariff falls away beyond 2016. The number of installations ramped up, so those early adopters although significant are by no means the majority of systems feeding onto the Australian grid

            I’m trying to decide if you are deliberately being obtuse with your last paragraph. The political climate has dampened the development of renewable energy production projects. If not for the major disruption caused by this government, we would have had more utility scale wind and solar projects. That would have significantly contributed on the supply side. The last eighteen months has halted many of these projects. Momentum built up since 2009 has been lost.
            “IF it is cost effective it would be widely used.” that is like saying “IF there was any value in going to space we would all be doing it.”The value is clear, the reduction in polution, the health benefits, the sustainability. The reduction in harmful environmental effects. All of these are benefits that are not easy to quantify in a dollar and cents term. The tide is turninig, This article demonstrates how the cost are coming down.

            I think Amelia Earhart had a beautiful quote that sums this up perfectly
            “Never interrupt someone doing something you said couldnt be done.”

          • Exovandal

            No to the laminated cheat sheet, as I stated earlier, I researched alternative energy a couple of years ago. I built a new house and it was going to cost me a large some of money to have the power connected from the grid, I considered a stand alone system, the cost was prohibitive.
            Thank you for clarifying what you get for the power you sell back to the grid, I was obviously wrong and was basing my assumption on others I have spoken with.
            Not being deliberately obtuse. This article was about renewables reaching parity in costs with fossil fuel generated electricity. I stand by my comment, if it was the same (or cheaper) it wouldn’t need subsidies and the free market would be clambering over themselves to sell it if they could make a buck. I am not considering costs to the environment here, just monetary costs.

  • onesecond

    Study after study has shown that FITs deliver better results at lesser costs. Last example is the new solar auction scheme in Germany that brought in prices between 9 and 10 cent, while the FIT in this category right now is below 9 cents. This is due to a higher level of bureaucracy, higher upfront development cost when entering a bidding and a much lesser variety of participants, while the number of actors from society is decreased to to the higher risk of losing the bidding. There may be the exception of offshore wind, where only big players can participate anyway, but in general you get much less for your money in auction schemes. But oh well, if investment banks and the wall street tell us that auction schemes are the way to go, they are surely right and only speak out of the kindness of their heart.

  • Exovandal

    There is no comparison between the price of electricity generated by renewables versus the price of electricity generated by coal. Why is that? Could it be that renewables are still 3, or more, times the price of dirty coal fired power stations.

    • Steve159

      As reported on this site, when environmental and health-related costs are factored in for coal, wind is substantially cheaper than coal.

      As for “Tell me how you store your energy for use after the sun sets?” — if enough wind farms are available on the grid, as Stanford University found, supply becomes stable across 24 hours.

      And that’s even before Tesla hits the deck with his low-cost home storage systems.

      Which ever way you cut it, in the near-term (within 10 years) coal is dead as a dodo. Gone. Kaput. Cactus.

      Exovandal, if you’re employed in the fossil fuel sector, I suggest you look to transition to another sector (e.g. solar installations), quick as, before the stampede.

      –update. As a group of Hunter Valley doctors concluded, “Hunter Valley coal’s annual health bill $600 million, doctors groups say” (SMH,

      That’s not counting the environmental pollution, or legacy environmental issues.

      All that aside. Simple question: do you want dirty polluting energy sources, or a clean energy future, with the added benefit that renewables engender substantial job creation. Why choose the former, if not for vested interest, or a substantial lack of imagination and can-do determination?

      • Exovandal

        Not employed in the fossil fuel sector. If you are employed in the renewables sector you might want to consider changing, have you seen the decrease in investments for renewables? How many wind farms need to be on the grid to make it stable? You do understand power decreases over distance, you cant have wind farms from one side of the country feeding into the grid on the other side of the country.
        Do the environmental and health related costs include the byproducts of rare earth extraction in China? Do they include the health cost to those living near the windmills? Do they include the costs to lives of not having cheap power in 3rd world countries?

        • Steve159

          Awh, Exovandal, you’re flogging a dead horse.

          You’re on the wrong side of history. Like arguing to keep horse-drawn carts when them horseless carriages showed up.

          Production processes — is easy to make them clean with sufficient regulation.

          Transmission losses — just as well coal-fired stations don’t experience that, eh. Just whack in a few more wind farms, counter any losses. Next.

          Harm from wind farms — a modicum, or even a hint of a skerric of evidence would help your argument.

          “include the costs to lives of not having cheap power ” … well, you know, on this site reported, Modi pumping billions into solar, rather than expensive transmission infrastructure. Tell him he’s dreamin’.

          And Buffett for investing 30 billion in all this new-fangled nonsense.

          Look if all this upsets you, take a bex or a pannadol or something, have a lie down, and when you get back up, the world will have moved on. Coal? what?

      • Alastair Leith

        EV report into Hazelwood estimated ~$900m pa in externalities including health effects from four toxins including PM and NO2 but not including heavy metals, and climate costs.That’s a lot of externalities for one 1600MW power station running 90% CF. Range was $0.5-2.1B

    • Here you go Exovandal. Note how the cost of coal in Australia is high and solar PV already nearly as cheap. And as steve159 says, this does not take into account coal’s pollution costs.

      • Exovandal

        There must be a problem with your chart. It shows coal as being more expensive than gas in Australia. That’s not right. Where did these figures come from and what costs do they include. Why do none of the renewables have a price for Australia?

        • It’s from HSBC, sourced from BNEF. If you tried to build a new coal-fired power station in australia, you would find it considerably more expensive than gas, as BNEF pointed out in their analysis last year.

          • Alastair Leith

            When did gas become cheap than coal in Australia (LCOE for new build plant)? I know the shale gas boom in USA did it there, how much is fracking a part of that story in Australia, is the fuel cost a big part of that, meaning if wholesale gas price doubles for export parity it becomes as expensive as coal, Giles?

          • It’s the cost of new generation i’d imagine. That requires new coal sources, not as cheap as current ones. And the financing costs would be astronomical given the risks involved.

  • Craig Allen

    Is there an intersection on these curves with the generation cost of existing coal fired stations. At that point surely new build renewables can start knocking off fossil generators with no need for a RET. Is that inevitable?

    • For higher price coal plants yes. Problem is most can still shovel dirts in a boiler and burn it and keep revenue just above costs. That saves them the cost of closure, which would be about $200m. Hence the need for strong emissions standards to force them out of system.

  • Titus Herek

    Can I get a link to the paper by HSBC?