Coal and gas are facing a mounting threat to their position in the world’s electricity generation mix, as a result of the continuous decrease in cost not just for wind and solar technologies, but also for batteries.
According to research from Bloomberg New Energy Finance (BNEF), fossil fuel power is facing an unprecedented challenge in all three roles it performs in the energy mix – the supply of ‘bulk generation’, the supply of ‘dispatchable generation’, and the provision of ‘flexibility.’
In bulk generation, the threat comes from wind and solar photovoltaics, both of which have reduced their LCOEs, or levelized cost of electricity, further in the last year, thanks to falling capital costs, improving efficiency and the spread of competitive auctions around the world.
In dispatchable power, or the ability to respond to grid requests to ramp electricity generation up or down at any time of day, the challenge to new coal and gas is coming from the pairing of battery storage with wind and solar, enabling the latter two ‘variable’ sources to smooth output, and if necessary, shift the timing of supply.
In flexibility, or the ability to switch on and off in response to grid electricity shortfalls and surpluses over periods of hours, stand-alone batteries are increasingly cost-effective and are starting to compete on price with open-cycle gas plants, and with other options such as pumped hydro.
Elena Giannakopoulou, head of energy economics at BNEF, said: “Our team has looked closely at the impact of the 79% decrease seen in lithium-ion battery costs since 2010 on the economics of this storage technology in different parts of the electricity system. The conclusions are chilling for the fossil fuel sector.
“Some existing coal and gas power stations, with sunk capital costs, will continue to have a role for many years, doing a combination of bulk generation and balancing, as wind and solar penetration increase. But the economic case for building new coal and gas capacity is crumbling, as batteries start to encroach on the flexibility and peaking revenues enjoyed by fossil fuel plants.”
BNEF calculates LCOEs for each technology, taking into account everything from equipment, construction and financing costs to operating and maintenance expenses and average running hours. It found that in the first half of 2018, the benchmark global LCOE for onshore wind is $55 per megawatt-hour, down 18% from the first six months of last year, while the equivalent for solar PV without tracking systems is $70 per MWh, also down 18%. Offshore wind’s LCOE is $118 per MWh in 1H 2018, down 5%.
BNEF has been analyzing the numbers on levelized costs of electricity for the different technologies since 2009, based on its database of project financings and work by its analyst teams on the cost dynamics in different sectors.
In that nine-year period, the global benchmark LCOE for solar PV without tracking has tumbled by 77%, and that for onshore wind by 38%. LCOEs for older established sources, such as coal, gas, nuclear and large hydro, have seen only very modest reductions, at best, in that time – and in some countries, they have actually increased. BNEF’s lithium-ion battery price index shows a fall from $1,000 per kWh in 2010 to $209 per kWh in 2017.
Reaction from Businesses
If coal and fossil fuel are facing threats from renewable energy, then are companies, industrial or commercial users, adopting it more and more? Many have been for years. Take, for example, Consumers Energy, the largest energy provider in Michigan. The utility recently announced that it aims to reduce carbon emissions by 80% and completely stop using coal for electricity generation by 2040. The public utility also said it plans to make sure at least 40% of the energy produced by that date comes from renewable sources.
And in January, it was announced that major corporations are requesting expanded transmission lines in the United States that can deliver renewable power to their facilities. Leaders from General Motors and Walmart told Bloomberg Environment earlier this year that they need the new transmission in order to meet their ambitious goals, and to keep costs down in the future.
Initiatives such as RE100, the coalition of companies committed to going 100% renewable, have raised awareness about global corporations committing to reducing their dependence on coal and fossil fuels. In September 2017, Estée Lauder, Kellogg, DBS Bank and Clif Bar joined RE100. AB InBev is another company that joined RE100 in 2017. The beverage giant also announced that they, along with Enel Green Power, have signed a power purchase agreement (PPA), whereby Anheuser-Busch will purchase the energy delivered to the grid and renewable electricity credits from a portion of EGP’s Thunder Ranch wind project in the amount of 152.5 MW.
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