July 31, 2018 Read More →

BNEF: Wind, solar and storage will generate 50% of global electricity by 2050

Bloomberg New Energy Finance:

Are wind and solar projects just “badly behaved coal plants”? I ask because this perhaps best reflects the argument against the two main renewable energy technologies that critics have put forward in recent years.

Yes, those skeptics admit, wind and solar have become cheaper and will continue to do so. However, they don’t produce electricity at the time people want it, or need it. And that means that the role they can play in the energy system of the future will be strictly limited.

I have news for proponents of the “badly behaved coal plants” theory. Their criticism – when you crunch the numbers to 2050, taking into account the cost dynamics not just of wind and solar but also of batteries – doesn’t stack up.

Every year, Bloomberg NEF runs its New Energy Outlook (NEO) for the future of the world electricity system, taking into account projections for country-by-country demand, technology costs, the transition in transport and many other variables – without assuming any new policy measures. Every year, this modeling exercise seems to produce a big surprise.

This time, with a forecast horizon set for the first time at 2050, NEO’s big surprise is that wind, solar and batteries are set to become far more deeply entrenched in the generation mix of almost every country than anyone has so far thought possible.

Below, I’m going to run you through the dramatic changes that the NEO team of 65 analysts around the world are now projecting. If you have appetite for the full report, then you can find it on the links shown at the end of this article.

Cheap renewables and batteries remake the world’s power systems, with wind and solar producing nearly half of world electricity by 2050

That is the headline message of the NEO 2018. In fact, we claim solar and wind have already won the race for cheap, bulk electricity – it just hasn’t finished playing out yet. In the report, we strip away policy drivers and show how economics alone might deliver a least-cost system filled with clean energy by the middle of the century.

At its heart, NEO is a technology story. It is the story of a shift from resource economics and fuel extraction, to manufacturing, where large-scale production of thousands of small modular components in a competitive environment drives incremental innovation and dramatic cost declines. Perhaps the most iconic example of this cost decline in the energy sector, and some might argue the most important data set in energy economics today is the PV module experience curve. Going back to the U.S. space program in the 1970s, it describes a cost reduction of 28.5% for every doubling of PV capacity – in other words, an exponential decline. Following this curve, the price of PV modules has dropped 83% since 2010.

Wind shows a 10.5% experience curve on a dollar per MW basis. This is less precipitous than PV, but for wind the reduction in unit cost is only part of the story – we are also getting much more energy per megawatt deployed. The average capacity factor of onshore wind has risen from around 20% in 2000, to close to 35% today. This is the result of bigger turbines, taller towers that lift turbines into less turbulent air, computer modeling to better position turbines across the landscape, and more sensors gathering data that can be used to help improve operational performance and reduce maintenance costs, as well as to feed into the development of the next generation of machines.

Solar and wind have already won the race for cheap bulk electricity generation, it just hasn’t finished playing out yet

If we also consider the balance-of-plant and financing costs, and feed these into a cash-flow model, we can calculate the cost of energy in dollar per megawatt-hour terms. Doing this for wind, solar, coal- and gas-fired power shows how competitive these technologies are relative to one another on a levelized-cost-of-electricity (LCOE) basis. Furthermore, if we map each cost component forward, we can construct forecast LCOEs for each technology and we can see two tipping points. The first is when the cost of new wind and PV crosses the cost of new-build coal and gas. The headline here is that, whether we’re talking about coal-fired power in China, or combined-cycle gas turbines spinning in the U.S., well situated and equipped wind farms and solar parks are already as cheap as, or cheaper than, fossil fuel alternatives, almost everywhere. In many places, a wedge opens up as wind and solar costs continue to fall, while fuel prices, weaker-than-expected demand growth and behind-the-meter PV keeps new large thermal plant underutilized.

The second tipping point is when it becomes cheaper to source electricity from new wind and solar than it is to get it from fueling and operating existing coal or gas plants. This takes longer, but is likely to start happening in the mid to late 2020s. What this means is that by 2030 we could see new wind and solar being built without subsidy to undercut the commissioned thermal plants, eroding the latter’s run-hours and revenues.

We conclude that with such steep learning curves, it’s a matter of when and how, not if, wind and solar disrupt electricity systems everywhere.

Batteries … for when the wind isn’t blowing and sun isn’t shining

However, even if renewables get really cheap, there is a problem. Wind and solar are not always available and there are of course times when the wind isn’t blowing and the sun isn’t shining. So how much can wind and solar ultimately do?

To help answer that, we need to think about energy storage, and the analysts at Bloomberg NEF are most excited about lithium-ion batteries. Like PV and wind, these are products of a growing manufacturing industry, economies of scale and incremental innovation. They are being propelled by a burgeoning electric vehicle industry. Our battery pack survey shows an 80% reduction in market price since 2010 – the product of an 18% learning rate. And manufacturing is expanding rapidly. Today we can identify 131GWh of lithium-ion battery manufacturing capacity worldwide. The bulk of that is in Asia, and almost 60% is in China. By 2021, we expect that GWh number to more than triple, with China controlling around 73%. It is clear that China is positioning itself to dominate the global battery market just as it cornered the market for PV technology.

Following the experience curve, we expect batteries to fall another 54% to $96/kWh in 2025, and 67% to $70/kWh by 2030. However there will probably be some bumps along the way – for instance, lithium and cobalt prices have tripled in the past 18 months and are set to slow down cost declines in the near term.

If batteries continue to fall in cost, there will come a point when they too will look competitive against conventional technologies.

More: Power System Will Dance to Tune of Wind, Solar, Batteries

Full report BNEF New Energy Outlook

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