The renewable energy revolution is happening faster than many expected.
According to recent report from Citi Research, renewables will continue their market share grabs from coal and gas for two reasons.
First, renewables are rapidly becoming cost-effective, and second, environmental restrictions are becoming an increasingly high hurdle.
Renewables Are Getting Cheaper
Thanks to tech advances, the cost of renewables is finally dropping to affordable levels, which is allowing them to proliferate, according to Citi.
“Costs for solar and wind energy are falling rapidly, with learning rates of around 30% for solar and 7.4% for wind,” the report states.
Wind power has already achieved cost parity with the most expensive coal power plants in Europe (slightly above $US80/MWh), and by the end of the decade it’s expected to reach cost parity with the majority of plants (around $US70/MWh).
Solar is still the most expensive major electricity source at the moment (around $US160/MWh), but Citi is projecting that by 2020 solar will drop to wind’s current prices (slightly above $US80/MWh).
“Natural gas has already eroded coal’s cost competitiveness in the US, with decreasing costs for wind, solar and ex-US natural gas to follow,” according to Citi.
Below is the global electricity cost curve.
Environmental Restrictions Favour Renewables
Historically there has been a correlation between economic growth and electricity demand growth. But right now we’re seeing the opposite: during a period of economic growth, electricity demand growth has been relatively flat or declined for some regions.
Some of this can be explained by the need for cleaner energy.
“Environmental pressures on coal consumption are rising not only in Europe and North America, but also in China and other emerging markets,” according to the Citi analyst’s note. “The most significant change has been in China, where increasing regulations and the establishment of carbon markets should limit the attractiveness of coal power. Moreover, the country is aggressively pursuing an ‘everything but coal’ development plan for the power sector, with rapid growth in capacity for alternative energy sources.”
Coal power plants are increasingly being pushed into “retirement.”
Most people have been expecting natural gas to be coal’s major substitute. However, Citi’s forecast suggests that growth in natgas demand is going to be way less than previously anticipated.
Renewables should take ever-increasing amounts of market share in an environment like this, according to the report.
In the figure above, you can see that coal’s utilized capacity (measured in GW) is projected drop from 198 GW in 2011 down to 181 GW by 2020. Natural gas slightly increases from 115 GW in 2011 to 132 GW by 2020, although that number is less than previously expected (and you can see there’s a dip from 2012 to 2014). Nuclear sees no major change in either direction, starting at 90 GW and ending at 92 GW.
On the flip side, renewables in 2011 were at 50 GW and are expected to rise to 68 GW by 2020.