A recent opinion piece by Sam Arie, a utilities analyst at USB, in the UK’s Financial Times argued that "renewables could soon be cheaper than all the alternatives, [which] is contributing to a wave of corporate action in the energy sector. The fundamental economics of the industry are indeed changing."
Arie argued that, without a need for subsidies, "renewables can start to grow as fast as technology development allows, rather than at the pace that energy ministers decree".
The favourable outlook for wind has been further enhanced by a recent increase in European gas prices. They are now around €26/MWh, 50% higher than a year ago. This means that the fuel cost of gas-turbine plant is now around €55/MWh — even without factoring in a carbon price, which has also risen recently and could add another €10/MWh to the cost of gas-fired generation. If the value of the fuel saving is greater than the cost of wind it becomes an attractive option. Many of the recent onshore wind auction prices have been below €65/MWh ($76/MWh, the fuel saving cost, allowing for the carbon price) which paves the way for more subsidy-free wind projects.
The latest version of the Lawrence Berkeley Laboratory’s Wind Technologies Market Report includes estimates of generation costs in the US, putting the overall average at around $44/MWh. The downward trend in project prices continues, as shown in the chart. Although prices levelled out in 2017, data on turbine prices from Vestas and Siemens Gamesa show a marked drop (6-10%) between 2016 and 2017. This trend has continued this year, and will feed through to project costs, as they typically account for 60-70% of total project costs.
Caution from the IEA
Despite this optimistic backdrop, the International Energy Agency (IEA), in its 2018 World Energy Investment Report, appears concerned that during 2017 renewable-energy investment ($298 billion) was 7% less than in 2016. Global energy investment in 2017 was $1.8 trillion, a 2% fall in real terms from the previous year.
Solar PV accounted for about half of the renewable-energy expenditure, with wind at around $90 billion. However, 99GW of PV and 59GW of wind were installed in 2017, up from 75GW and 55GW respectively in 2016, so there was no slowdown in capacity terms.
Some estimates of future wind-development growth are shown in the chart below, drawn from the IEA and the Global Wind Energy Council’s (GWEC) Wind Energy Outlook 2016. The estimates in that edition were substantially higher than those in the 2014 edition.
In GWEC’s ambitious "advanced" scenario (which assumes favourable policies and political support), wind energy delivers just under 10,000TWh of electricity by 2040 — about one third of total global generation. The "new policies" (np) scenario of both GWEC and the IEA assume that current policies continue, with proposals currently in the pipeline being enacted. The IEA suggests a lower contribution than GWEC, no doubt because the former assumes there are substantial developments in nuclear and carbon capture. The IEA projection suggests wind will deliver about 4,000TWh by 2040 — about 14% of global electricity production. The corresponding projection for photovoltaics is just over half the wind figure.
At a glance — This month’s report conclusions
"Renewables are primed to enter the global energy race", Sam Arie, Financial Times 14 August Concludes that the falling costs of renewables means that the structure of the industry will change
Wind Technologies Market Report 2017, US Department of Energy, 2018 Data on the development of the US wind industry
World Energy Investment Report, International Energy Agency, 2018 Renewable-energy investments declined slightly in 2017