Renewable power generation costs lower than fossil fuels with clean energy ‘set to be even more cost-competitive’: new study
A new study, the first in a series challenging the assumptions underlying energy analysis, is published today by the London-based Carbon Tracker initiative which is made up of financial specialists identifying and analyzing climate risk in today’s financial markets. It compares the power generation costs of four new-build coal, gas, wind and solar plants and finds that renewable power generation costs are “already lower than average worldwide than those of fossil fuels.”
Clean energy plants, it says, will become even more cost-competitive by 2020.
In its report End of the load for coal and gas? Carbon Tracker applies a Levelized Cost of Electricity (LCOE) sensitivity analysis across three scenarios: the 2016 reference case scenario, an updated 2016 scenario and a 2020 2°C pathway setting, where investment decisions take into account decarbonization trends. The levelized cost of electricity is a way to compare different methods of electricity generation using average total cost to build and operate a power plant divided by its total lifetime energy output.
The LCOE study shows, it says, that reduced load factors and shorter lifetimes for coal and gas plants in a steadily decarbonizing world significantly undermine plant economics. At the same time, the combination of lower cost capital with cheaper technology for solar and wind improves the relative competitive position of renewables.
“This analysis explains why renewables are already the cheapest option in a number of markets. This trend is only likely to spread as the growth of renewables undermines the economics of fossil fuels,” said Paul Dowling co-author of the report.
“Policy-makers and investors really need to question out dated assumptions on technology costs that do not factor in the direction of travel post-Paris. Planning for business-as-usual load factors and lifetimes for new coal and gas plants is a recipe for stranded assets,” said James Leaton, Carbon Tracker’s head of research.
Carbon Tracker’s analysis compares the technical specifications of coal and gas plants with what is being achieved on average in plants currently operating and also compares them with projects that may occur in 2020 and beyond. For example, it says, typical plant utilization rates used by industry in reference case scenarios are around 80 percent for coal and 60 percent for gas.
“But we know from available 2013 data that global average plant capacity factors were much lower than this - at 59 percent and 38 percent respectively- thereby making the plants less competitive than had been thought,” say the authors.
By 2020 falling utilization rates under a 2°C scenario finds plant capacity factors for coal and gas drop to an average of 42 percent for coal and 31 percent for gas, thereby leading to an increase in costs of $16/MWh for gas plants and $38/MWh for coal, says the report.
By contrast, if solar and wind could deliver capacity factors of 20 percent and 40 percent respectively, they would cut their LCOEs by $6/MWh for solar and $15/MWh for wind, it adds.
As developers and management funds with lower costs of capital enter the market for developing new renewable power plants, they are bringing down LCOEs for more capital-intensive renewables, says the report.
“The direction of travel forged by the implementation of Nationally Determined Contributions post-2020 will see renewables on average more cost-competitive even if fossil fuel prices fall and carbon prices are modest at around $10/tCO2 or lower,” it says.
“Markets are having to deal with integrating variable renewables on a growing scale. Rather than continue debating whether this energy transition is already occurring, it is time to focus on developing the opportunities in energy storage and demand management that can smooth the process,” said Matt Gray, senior analyst and co-author of the report.
This latest report from Carbon Tracker comes at a time when “the buzz word of the moment in the energy business is ‘transition’” as an analysis piece in the Financial Times newspaper this week makes clear.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com