Cost not capacity the crucial statistic for renewable energy

By John Parnell

According to one football commentator, statistics are like Speedos, they reveal an awful lot, but they never quite give you the full picture.

The same is true when it comes to renewable energy.

The sector has had a tough few years. Riding out the recession while dependent on support from public money is no joke and the industry has rightly celebrated its successful passage through a turbulent period.

Today a report from WWF claims that Europe could be generating more than 40% of its energy from renewable sources by 2030.

Yesterday the Global Wind Energy Council (GWEC) revealed that the amount of installed wind power grew by 19% last year. A growth rate of 20% doesn’t mean much when you are starting out with such a low base.

The day before that the European Photovoltaic Industry Association announced that solar PV capacity topped the 100GW mark in 2012.

Solar energy costs are falling rapidly but emerging technology could get left behind if policies don’t fund support research efforts. (Source:Brightsource)

All these are signs of progress towards a low carbon energy landscape and the associated reduction in emissions it will bring.

But what do they really mean?

These statistics don’t tell us how close (or otherwise) renewables are from becoming an economic solution to cutting carbon emissions. The energy sector is after all responsible for more than a quarter of all greenhouse gas output and transforming it is essential to getting the emission reductions we need.

“We’re in the media game of going for league tables and arbitrary numbers that look big, we are in danger of losing sight of the real objective,” says Tom Burke, co-founder of the E3G consultancy and a former executive director of Friends of the Earth.

“The real issue is the change in the risk landscape. What we’ve got driven largely by the way the Chinese have driven wind and solar is that costs are going down rapidly.”

Risk perception

Perhaps a more interesting renewable energy landmark that flew largely under the radar this week was the announcement by small US utility, El Paso Electric, that the power from its new solar farm would be half the cost as that from its newest coal power plant.

“There’s huge uncertainty in government policy. In a more risk-averse world solar and wind investments look like better bets, they look more future proof,” Burke told RTCC.

“I think there is a broad view in the corporate world that they don’t expect governments to do anything about climate change anytime soon, but they can’t rule out the possibility of them doing something in the future. If you can pursue technologies that are lower risk and it future proofs you against climate policies, then renewables are starting to look like better bets.”

Burke says the bigger story about renewables is not about arbitrary round numbers but the approaching of a tipping point where renewables compete with fossil fuels in a risk averse world “that could change all the conventional wisdom about the future”.

This could price out the coal industry and force investors to respond. Then and only then would politicians react to a new energy market and embrace the sector.

Cutting costs

So if the end game is to reach the stage where renewable energy technologies that currently rely on government support are competitive with lower cost, higher carbon sources of energy, how close are we?

“The most important measure of success for renewable technologies is not simply the quantity that has been rolled out, but whether they contribute to cost-effective decarbonisation,” says Simon Moore, research fellow at Policy Exchange.

“Eventually, that means becoming cost-competitive with fossil fuel generation. Some technologies are getting closer – onshore wind probably being nearest, while solar prices are falling quickly too,” he says.

Various policy approaches to bring the cost of renewables down to a competitive level have been rolled out but Moore warns that too many, including the EU’s target of obtaining 20% of its electricity from renewables by 2020, fall in to the trap of short-termism.

“[The EU] policy is focused on deployment of technologies available today, at the expense of earlier stage R&D efforts and of being able to absorb lessons from ‘learning-by-doing’. It promotes mass deployment of technologies when they are at their most expensive, rather than when their costs have fallen,” he says.

Wind, solar & geothermal capacity increased its share by 0.8% between 1971-2010 (IEA)

Falling cost seems is a more important metric for clean energy than passing arbitrary landmark figures. The industry has is now responsible for around 15% of the global energy mix according to the IEA, and a shift in the rate of change would obviously be helped if government support was no longer necessary.

“Capacity milestones have a symbolic importance. They can also have a real importance if the extra experience leads to reductions in the cost of the renewables,” says Chris Hope, IPCC author and University Reader in Policy Modelling at Cambridge University.

Despite the confidence boost that these milestones can provide, cost is king. But a straight comparison of how much it costs each technology to produce a unit of electricity is not sufficient, says Hope.

Hope contributed to the 2005 Stern Report, the assessment of the economic impact of climate change and it is these impacts that also distort direct comparisons of different energy sources.

“To calculate this requires a fairly complex model of the system, so it is not surprising that some people often fall back upon approximate measures like the cost per kW installed, or the levelised cost per MWh generated,” says Hope. These don’t account for the fact that renewables don’t run at full capacity or on request when demand for electricity increases.

“The proper calculation also requires decisions about the discount rate (related to the cost of attracting investment and often under 5% a year for renewables, about half that of nuclear) and about the social cost of CO2, which could well be $100 per tonne,” says Hope.

There are major shift in energy on every continent but China will ultimately pick the winners” according to the IEA. (Source: Flickr/AK Rockefeller)

Renewable energy is on the rise and falling costs are only aiding this but the pace and scale of the take-up is not sufficiently enough to meet demand, not by a stretch.

The IEA’s chief economist Fatih Birol recently pointed out that while China’s massive drive for renewable energy will be overshadowed by its growing thirst for coal, it will remain significant for different reasons.

Birol said China will add enough power plants in the next 20 years to power modern-day Japan and the US combined, so the renewable energy technologies it chooses, will become cheaper for everyone.

“This will change the economics of those technologies. The history of the energy economy will be written in Beijing,” he said.

China has demonstrated interest in offshore wind and some niche marine energy technologies but its focus remains on onshore wind and solar. Policy Exchange’s Moore calls for policies to help boost promising emerging technologies but it would appear China is keen on those two old favourites.

If Beijing can drive these costs down for everyone else in the process, consumers and business will benefit. That, rather than meaningless capacity announcements, will be a real driver for clean energy across the planet.


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