The costs of low-emission technologies have fallen dramatically .
In 1976, a solar module cost $106 per watt. Today it is closer to 38 cents, a decline of 99.6 per cent.
According to the IPCC’s Sixth Assessment Report, the unit costs of solar energy have decreased by 85 per cent since 2010, lithium-ion batteries by 85 per cent and wind energy by 55 per cent. These cost reductions have driven greater uptake.
The graphs below from BloombergNEF show how the costs of low-emissions technologies have decreased over the last decade.
What has caused the prices to decrease?
🙌 Learning rates 🙌
Learning rates, or experience curves, are something we see across many technologies. Wright’s Law or Moore’s Law, model technological improvement over time. They show that more you deploy a new technology, the cheaper it becomes.
A mobile phone in the 1980s, like this…
… might have cost almost $10,000, but the technology got better and cheaper.
We are witnessing the same thing with low-emissions technologies.
As a technology is deployed, researchers ‘learn by doing’. They gain more experience, work out how to make things better and find and new efficiencies. Producing larger volumes of a technology means economies of scale can lead to further cost reductions.
It’s a virtuous feedback loop. When the prices of these technologies fall, they become more competitive in new markets. Demand for the technologies increases, which means more are deployed. As more are deployed, prices fall and they become more competitive in new markets, and so on…
Renewable energy has another cost advantage over existing energy sources.
Fossil fuel plants must factor in operating costs and the price of fuel they burn. Renewable energy has low operating costs, and the price of fuel is, well…
… zero.
The main cost is the technology itself, which as mentioned, is declining.
When environmental and health costs are also factored in, the renewable source stands out even more as a superior option on a cost-benefit basis.
There is no reason that these cost reductions should be limited to the energy sector.
Ongoing innovations could see the costs of low emissions technologies also decrease in the transport and agriculture sectors. This could occur as low-cost, distributed energy becomes available as an input for other industries. Also, as affordable, reliable renewable energy is deployed, researchers can focus on new challenges.
Researchers at Oxford University suggest that existing modelling has underestimated the swift, transformational change that will occur as cheap, renewable energy becomes available at low cost.
As energy becomes cheaper, technologies such as CEA and desalination become more cost-effective.
Many of us struggle to appreciate the significance of the energy transformation that is unfolding. In terms of the effect on humanity, it may be comparable to the industrial revolution.
Great, low-emissions technology is cheaper than ever.
Climate change is solved.
Right?
The 6 enemies
Note that a sustainable climate pathway requires a net zero emissions energy sector in the next 30 years or sooner i.e. the same timeframe as presented in the graph.
As the graph above shows, solar and wind still only generate less than 10 per cent of all electricity in the world.
While its share is increasing, the pace of change remains insufficient to meet the temperature goals of the Paris Agreement.
It’s one thing to build out a renewable future, but polluting facilities must also be taken down. This is relevant to the present moment because today’s decisions can lock in facilities and infrastructure for the next 30 years or more.
So if available low-emissions technologies are so cheap, and becoming cheaper, what’s stopping further roll-out?
Introducing:
Subsidies
Many governments decide to spend money on subsidising fossil fuel-based energy. By reducing the cost of energy, it makes it more affordable for consumers, allows industry to produce more and maintains levels of employment. Subsidies appear in almost all countries, and while they are trending down, governments spend around half a trillion dollars on supporting fossil fuels.
Low-cost energy and jobs. No worries, right?
Not so fast.
Many of these subsidies are not well targeted, benefitting the wealthy who use more of the subsidised fuel. It can also create negative externalities (environment, health), strain government budgets and deploy public funds that could go towards more useful things, like infrastructure, health and education.
Getting into the economic weeds a little more, it also distorts the real price of things.
Price is important. It signals the value and scarcity of something.
Often, a higher price leads people to seek cheaper alternatives. By artificially lowering the price of fossil fuel energy, it prevents the switch to cheaper alternatives.
Subsidies are also hard to remove. This is because removing them would increase the price of energy (and everything that uses energy), leading to unrest and repercussions at the ballot box.
Subsidies are also hard to remove because of the special interest groups supporting them.
Special interest groups
To meet the goals of the Paris Agreement and speed up the energy transition two things need to happen: Low-emissions solutions need to come into the economy and high-emissions facilities need to leave it.
In almost all parts of the world, on a LCOE basis, investing in renewables makes sense. On a global scale, deciding to invest in a low-emissions future could even be trillions of dollars less expensive.
Yet often, special interest groups corrupt the decision-making process that would speed up an energy transition; instead retaining existing, high-pollution technologies.
Removing vested interests in an existing market is difficult as key players hang on to extract the last remaining dividends. This is particularly prevalent in Asia, where the coal fleet is new and is unlikely to be replaced for many years.
In a best-case scenario, established industries try to hold back the tide, only to be overrun by low-emissions alternatives. In a worst-case scenario, government officials work together with industry to prevent change. In other words, corruption prevails.
Siting and transmission
Conventional power stations, like the one shown on the left of the above graphic, exist on a patch of land with transmission lines extending to homes and businesses.
Renewable energy is more spread out. It requires more surface area and sometimes requires new transmission lines to bring the electricity to where it’s needed.
While this opens up new opportunities for remote access and flexible management, the installation requires contracts, permits and community approval—which can delay (or end) projects.
In some countries, the question of space is a real concern. For example, Singapore and Japan do not have the same luxury as Australia and South Africa when deploying utility-scale solar.
However, this can be overcome with smart use of space (including rooftops), long-distance transmission lines like the North Sea Link, and use of renewable energy storage (e.g. renewable-produced hydrogen).
Perceptions of reliability
“But the sun doesn’t always shine and the wind doesn’t always blow.”
Correct, but these questions around security, reliability and the need for baseload power to achieve them can be misleading. They are rooted in the idea is that power generators must run full time for them to be effective.
What’s important is reliability. When you turn the lights on, they need to stay on.
To achieve reliability in a renewables-based system, you need flexibility—the ability to ramp up and down as needed to fill any gaps.
This can be achieved with storage (batteries, open-cycle gas turbines, pumped hydro) and transmission links to other countries regions.
Digitalization and grid management also become more important. A digital revolution is on the horizon involving smart appliances, real-time pricing, home batteries, and other modern grid technologies. Energy efficiency measures can also reduce overall demand and consumption.
It is a completely different system.
Modellers and researchers have previously shown how it can work. Now it is being demonstrated in practice, with South Australia successfully managing its grid with almost 70 per cent renewables.
Regulatory and political framework
Sometimes governments get in the way.
Sometimes it’s because they are not making policy decisions that would otherwise speed up clean energy deployment.
For this, regulatory frameworks can encourage renewables. For example, pricing can be set up in a way that reflects the variability of demand and supply. Governments can also assist with transmission and storage to support new energy sources.
Sometimes it is because they are actively preventing it.
Countries can impose policies that deter renewable investment or technology uptake (for example, through import taxes on electric vehicles). As indicated, governments might continue promoting polluting industries instead of ushering in clean technologies.
Good policy can let the market put in place an effective energy transition. Bad policy can hold it back for decades.
Market entry
New energy industries must compete with incumbents for infrastructure, expertise, supporting policy and attention. While the low cost of new technologies will often prevail, competition can slow down the transition.
| Relevant articles and reports published in recent weeks: Fuel Switching 2.0: Carbon Price Index for Coal-to-Clean Electricity |
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