Cost, not capacity, is the crucial statistic for renewable energy
- 13 Feb 2013, 12:00
- 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.
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. Burke told RTCC:
"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."
"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. He says:
"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."
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. He says:
"[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."
Wind, solar & geothermal capacity increased
its share by 0.8% between 1973-2010 (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. Hope adds:
"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."
These don't account for the fact that renewables
don't run at full capacity or on request when demand for
electricity increases. Says Hope:
"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."
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. Birol said:
"This will change the economics of
those technologies. The history of the energy economy will be
written in Beijing."
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.
This piece was reproduced with kind permission
from Responding to Climate
Change
image courtesy of Brightsource