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Wind, Solar Often Cheapest Sources of Energy: BNEF

By Cas Biekmann | Wed, 10/21/2020 - 09:20

Most places in this world can count on wind and solar energy as the cheapest source of energy generation, according to a recent analysis published by BloombergNEF. The report states that in five years, a new turning point will be reached where it becomes more expensive to operate an existing power plant based on coal or natural gas than to build a new solar or wind plant.

The findings are part of a steadily growing research showing the benefits of incorporating renewable energy generation into the grid. Nevertheless, there is a limit to how far wind and solar can spread, says BNEF’s Chief Economist, Seb Henbest. In every country, renewable energy will reach a certain saturation point, after which clean energy will no longer reduce electricity generation costs compared to existing coal and natural gas power plants.

BNEF predicts that renewables will not grow past a 70 to 80 percent share in the electricity mix, even in countries where renewable energy is highly incentivized and traditional forms of energy generation taxed heavily. Henbest says that reaching these percentages “is far off in pretty much every market we look at.”

When it comes to levelized cost of energy (LCOE), the price of renewables tends to surprise many due to its low costs. According to LCOE estimates published by the UK’s Department for Business, Energy and Industrial Strategy (BEIS), wind and solar were around 30 to 50 percent cheaper than estimated in the same report in 2016. The reasons for these lower prices are technological advancements, cheaper manufacturing costs, operational experience, longer project lifetimes and cheaper, more accessible financing. Gas with carbon capture and storage (CCS) comes close to renewable prices and is of particular interest to UK researchers as well.

In Mexico, the LCOE for renewable energy became part of the wider discussion for private, renewable energy generation versus CFE’s state owned-electricity production. In June, CFE head Manuel Bartlett argued that “wind and photovoltaic do not pay the CFE for the backup,” resulting in an unfair situation where CFE’s costs were driven up to provide transmission and backup for companies that do not produce energy around the clock. While BNAmericas reported that renewable energy companies managed to sell CFE energy at US$20.57/MWh – as a result of the long-term energy auctions which including Clean Energy Certificates (CELs) – these low prices do not factor in CFE’s issues. Nonetheless, experts predict that the long-term weighted average LCOE will continue to drop, leading to even lower prices for CFE which could potentially offset what it sees as problematic costs for backup and transmission.

BNAmericas interviewed John McNeece, Energy Analyst at University of California San Diego, who argues that having a constant backup for renewable energy is not as essential as CFE claims. “They seem to be arguing that you have to have 100 percent backup at all times,” McNeece said. Renewable energy could make use of batteries to cover generation gaps during the day or even supply enough energy to make up for the nighttime.

The data used in this article was sourced from:  
BloombergNEF, BNAmericas, BEIS
Cas Biekmann Cas Biekmann Journalist and Industry Analyst