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Shift to “base-cost” renewables: 10 predictions for 2017

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BNEF

When Christopher Columbus and the other great explorers undertook their epic voyages of discovery in the 15th and 16th centuries, they navigated a world of extraordinary risks. Buffeted by the worst storms the great oceans could throw at them, ravaged by illness, under constant threat of attack. On they sailed, eyes on the horizon, sustained by their dreams of discovering new lands. Welcome to the world of clean energy in 2017!

At the beginning of 2016, we listed some of the grave threats facing clean energy, but we felt that the sector was well-placed to withstand them. “Clean energy,” we said, “is now a third-of-a-trillion-dollar industry, with a strong cadre of competitive suppliers, enjoying a generally supportive policy environment – now underpinned by the commitments made in Paris.” And clean energy certainly had a decent year, as we wrote last month in our review of 2016.

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Nevertheless, when BNEF published its full-year investment figures earlier this month, they were down a significant 18 percent on 2016, to $287.5 billion. Yes, the volume of wind and solar installations hit a new record in 2016, preliminarily estimated by our analysts at 127 gigawatts, some of that funded in 2015, a year of record investment (we are still calculating exactly how much).

Of the 18 percent drop in dollar terms, around half may have been due to reductions in the cost of equipment, as opposed to reductions in the volume of activity. Of all the many threats we listed – which included Brexit and the potential of a Trump victory – it was the slowing Chinese economy that most materially impacted the 2016 figures.

At the start of 2017, it is again easy to list the potential storms that might disrupt the smooth sailing of the good ship clean energy. First and foremost, of course, the potentially tempestuous consequences of Donald Trump’s arrival in the White House.

Another is Brexit, which has been generating severe hurricane warnings, though no actual wind, for some time. If you like your storms with a European flavour, 2017 will see elections in France, Germany, the Netherlands and the Czech Republic. Pollsters are confident that although Marine Le Pen will get through to the final round, she will then lose to whichever mainstream candidate she is pitched against. So it seems wise to plan for the worst.

Asian clean energy investors too should be keeping an eye on the weather. China’s economy is still dangerously unbalanced, over-investing in construction and infrastructure, over-leveraged and over-burdened with darks pools of poor lending.

In addition, China faces the risk that Trump sparks a trade war with all his talk of currency manipulation and import tariffs, or even a military stand-off over its newly fortified island bases in the South China Sea. If Narendra Modi’s India is supposed to provide the next China-style surge of demand to the world’s commodity producers, all the signs are they are waiting in vain.

And globally, one of the biggest risks to clean energy lies in a potential jump in interest rates. The era of super-low central bank rates is most likely drawing to a close. The big question as risk-free rates rise, is whether risk premiums to clean energy projects can continue to come down to compensate – or whether all-in borrowing costs will rise, jeopardising the competitiveness of renewable electricity.

Assuming that none of these storms – or others we haven’t thought of – cause a clean energy shipwreck in 2017, we think our little flotilla will sail on – perhaps not serenely, but more or less as it did in 2016.

The good news is that renewable energy has – at least on a levelized cost of electricity, or LCOE, basis – clearly achieved the long-awaited goal of grid competitiveness. More than that, in many countries it now undercuts every other source of new generating capacity, sometimes by very considerable margins.

Last year saw unsubsidized price records of $30 per megawatt-hour for a wind farm in Morocco and $29.10 for a solar plant in Chile. These must be the lowest electricity prices, for any new project, of any technology, anywhere in the world, ever. And we are still going to see further falls in equipment prices.

Super-low-cost renewable power – what we are now calling “base-cost renewables” – is going to force a revolution in the way power grids are designed, and the way they are regulated.

The old rules were all about locking in cheap base-load power, generally from coal or hydro plants, then supplementing it with more expensive capacity, generally gas, to meet the peaks.

The new way of doing things will be about locking in as much locally-available base-cost renewable power as possible, and then supplementing it with more expensive flexible capacity from demand response, storage and gas, and then importing the remaining needs from neighbouring grids.

New nuclear plants will remain the political bauble they currently are, unless next-generation nuclear can prove it can deliver fail-safe designs at affordable cost. Demand will be suppressed by energy efficiency and self-generation, and augmented by electrified transport and heat.

Putting super-cheap, “base-cost” renewable power at the heart of the world’s grids in this way will require a revolution in the way the electricity system is regulated. Renewable power’s progress to date has been achieved mainly by subsidizing or mandating its installation, while forcing the rest of the system to provide flexibility, within otherwise unchanged regulatory environments and power market rules. The additional system costs have been material but generally affordable.

That has taken renewable energy to 20, 30 or 40 percent of supply in many markets. But it won’t work when it comes to 60, 70 percent or higher. That would mean a smaller and smaller proportion of conventional power generation has to provide a larger and larger amount of flexible supply for which it was never designed. We are reaching the point in the story where power system regulation will have to be fundamentally rethought. Simply layering on a capacity market is the wrong response: creating guaranteed demand for obsolete technologies has never ended well.

But enough of the mood music and wider trends: it is time to take a deep breath and make 10 bold predictions for 2017. As before, we are doing so with the help of BNEF’s teams of 120 specialist analysts around the world.

To see full story, and the 10 predictions, please click here

Source: BNEF  

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  • trackdaze

    What gas needs is some competition from storage.

    • Bristolboy

      I think storage is now getting to the point where it can compete with peaking gas/diesel which has to be good news.

      • trackdaze

        With price peaks of $14000pMW. Everythings is in

    • solarguy

      Absolutely and some storage can be from Biogas from waste!

      • trackdaze

        Thought that would be utilising fugitive emmissions.

        • solarguy

          Well it is, but shit and other bio waste not only stinks, it gives off methane which is an extremely potent GHG. Better to utilize it and it becomes part of the carbon cycle without adding to the problem of non-renewable carbon such as coal etc.

          Every sewerage treatment plant can become a source of days or even weeks of cheap storage and excess can be sold to industry or bottle gas for off-grider’s and campers.

          If it’s desired to be ultra clean with it, reacting it with water, which is part of the waste stream anyway, with high temp solar thermal, gives the fuel a 25% increase in calorific value and a cleaner burn too! Check the CSIRO for details on their process.

          • trackdaze

            Not storage then.

          • solarguy

            So if tens of thousands of cubic meters of gas in a big f%#k off bottle waiting to be burnt in combine cycle turbines isn’t storage, then I don’t know what that would be called!

          • trackdaze

            fugitive emmissions.

          • solarguy

            Ok be specific about fugitive emissions in this scenario, what are your concerns?

  • Ian

    The European powers behind Christopher Columbus and the other great European Explorers ravaged the Caribbean and then North And South America, not a pretty history. Rather than terra nullius all those places were already explored and populated. A rather unfortunate illustration of renewables . I don’t think the native Americans would like to be compared with coal and oil loving primitives being over run with glorious renewables-type European explorers! There’s gold in them thar hills.

  • Coley

    The full article is well worth a read, caltrops in the road for the FF lobby-:)

  • Ian

    Michael and Angus, not to put you on the spot, but how did your predictions do last year? I see you looked back at some predictions, like # of EVs, but what about the rest? Thanks, and well worth the read!

  • Don McMillan

    Comments to this article talk about the need to replace gas with “storage” facilities. Even if we started today building batteries or molten salt, etcit would take at least a decade to build these facilities. Right now, today, renewables in Australia need gas.
    Unfortunately, the gas industry has been decimated. Political solutions like forcing QLD CSG to supply NSW/Vic domgas will not work – there are practical reasons + constitutional reasons. So here are my predictions
    1 gas prices will rise, disruptions to the electricity will increase and renewables will get, rightly or wrongly, further bad publicity.
    2 Manufacturing will decline, increasing unemployment and demanding subsidies etc
    3 Public discussion regarding building new coal power plants will enter the debate

    The lesson for the renewable industry is to support industries [e.g gas] you rely on until you have a replacement product [storage] in place and operational.
    As with all predictions time will tell.