Nicolas Liso Fabbri: The competitiveness potential of renewable energy in terms of costs
The world is facing an unprecedented turning point. Climate change poses a real and imminent threat to the prosperity that many people enjoy today, to which millions of people aspire and for which such people work. But, naturally, it is more than that. It is about the survival of the most vulnerable citizens of this planet and the protection of ecosystems and biodiversity that we should be preserving. The changing climate is mainly driven by emissions from the burning of fossil fuels, although there are also other important factors that contribute to this phenomenon. To curb climate change, we must reduce our consumption of this type of high-carbon fuels. Renewable energies can and should be a central element of this plan.
The increase in renewable energy development will also bring other benefits. Renewable energy technologies create employment, reduce air pollution at the local level and consume less water resources. Such technologies use almost exclusively local resources and, therefore, help to protect our economies against the consequences of external instability in terms of energy security. Another decisive aspect is that, for many of our 173 Member States and signatories, renewable energy is also one of the fastest ways to increase access to electricity. The highly modular nature of many of these technologies, especially the photovoltaic solar and coastal wind installations, also implies that, for the first time in the history of the electricity sector, people and communities are playing a role. active in its own electricity supply. As such, renewable energy technologies are leading a shift towards a more democratic and distributed energy system.
The advantages of renewable energy are numerous and obvious, as have been the barriers to its use. Market structures, lack of understanding of emerging renewable technologies, difficulty in accessing subsidies, high financing costs, the existence of inadequate regulatory frameworks, lack of remuneration to compensate for externalities derived from the use of fossil fuels ( for example, carbon emissions and air pollutants at the local level), the small size of markets and regulatory uncertainty are factors that have contributed, all of them, to hinder the development of renewable energies. Fortunately, thanks to the hard work of industry, governments, and financing and regulatory institutions, many of these barriers are beginning to disappear.
Renewable energy generation technologies have accounted for more than half of all new additions of power generation capacity made every year since 2011. Currently, there are 164 countries that have established renewable energy targets, which represents an increase with respect to 2005, the year in which this figure only amounted to 43. In 2014, a historical maximum of more than 130 gigawatts (GW) of renewable energy was added to the global energy matrix, and investment in the sector increased from US $ 55,000 million in 2004 to more than US $ 260,000 million in 2014. Also in 2014, new additions of photovoltaic solar energy capacity recorded a new record of 40 GW, while wind power also registered a historical mark with the addition of 52 GW.
THE ROAD TO COMPETITIVENESS
The economics of renewable energy technologies is essential to understand their potential role in the energy sector and the speed and cost with which this sector can be oriented towards the path of truly sustainable development. Unfortunately, most governments have not systematically collected the data necessary to track trends in evolution - which many would rightly qualify as "revolution" - of the costs of renewable energy technology. The result is that, too often, misconceptions about costs or obsolete data have undermined the effectiveness of policies.
The trends revealed by these data not only demonstrate the success of the development policies of this type of technology in reducing costs, but also serve to support the transformation of the energy sector in the future.
The cost competitiveness of renewable energy generation has reached historic levels. Currently, in those places where there are adequate resources and cost structures, the production of energy from biomass, hydroelectric power and coastal wind installations can provide electricity competitively with respect to the generation of energy from fossil fuels.
The prices of photovoltaic solar modules, in 2015, are between 75% and 80% lower than they were at the end of 2009. Between 2010 and 2014, the standardized cost of electricity (LCOE) ) relative to the photovoltaic solar energy generated at public service scale was reduced by half. The most competitive public-scale photovoltaic solar power generation projects today provide electricity on a regular basis, without the need for financial support, for only US $ 0.08 per kilowatt-hour (kWh), compared to in the range of 0.045 to 0.14 United States dollars per kWh corresponding to electricity from fossil fuels. However, it is expected to assume even lower costs for 2017 and later years. Recently, a tender in Dubai was approved at a cost of US $ 0.06 per kWh, which perfectly illustrates the change that is being experienced, even in a region where fossil fuels abound.
Coastal wind farms are currently one of the most competitive sources of electricity available. Technological advances, which have taken place in parallel with the decrease in installation costs, mean that the cost of coastal wind installations is, today, in the same range, or even in a lower one, with respect to derived from the use of fossil fuels. Wind projects worldwide provide electricity on a regular basis at a cost between 0.05 and 0.09 US dollars per kWh, without the need for financial support, and the best projects have an even lower cost.
In general, solar concentrating energy and coastal wind facilities are still, today, more expensive options than the generation of electricity from fossil fuels, with the exception of coastal wind installations located in tidal plains . However, these technologies are in an initial phase of development. Both represent important sources of renewable energy that will have an increasing weight in the future energy matrix, since their costs will continue to decrease.
The costs of the most developed technologies for renewable energy generation - energy production from biomass, geothermal and hydroelectric - have remained stable, in general, since 2010. However, in places where there are still untapped economic resources , these developed technologies can provide some of the cheapest electricity generated from sources of all kinds.
Given the installation costs and the performance of current renewable energy technologies, as well as the costs of traditional technologies, it is clear that renewable energy generation is getting closer and closer, without the need for financial support,
THE SENSE OF USING VARIABLE SOURCES OF RENEWABLE ENERGY FROM THE ECONOMIC VIEWPOINT
To achieve a truly sustainable energy system, wind power and photovoltaic solar will have to increase their role in the supply of electricity quickly and progressively. The main challenge is, therefore, to manage its implementation in a way that minimizes any additional costs derived from such integration. The approach to regulatory support provided needs to be changed, as soon as possible, from the current compartmentalized approach that supports each technology separately to one that sets long-term objectives to minimize overall system costs.
There are no technical barriers to increase the integration of variable renewable resources, such as wind and solar energy sources. As long as the degree of penetration is low, the integration costs in the electricity grid will be negative or affordable, but these may increase as the penetration increases. Even so, if we look at the environmental costs, both globally and locally, of fossil fuels, such costs of integration into the electricity grid seem considerably less overwhelming, even maintaining a 40% supply of energy supply from variable sources of renewable energy. In other words, all things being equal and taking into account all possible externalities, renewable energies remain basically competitive.
Variable sources of renewable energy raise different issues in relation to the electricity supply system, although the principle is the same: a combination of technologies installed in a wide range of locations will be needed to meet a demand that varies daily. Hydropower, biomass energy production, geothermal energy and solar concentration energy with thermal energy storage are technologies with base or available load, and do not pose special problems for the operation of the electricity grid.
Additional costs throughout the system that could be considered to be located above the cost of variable sources of renewable energy are relatively affordable. The consequences in terms of costs for transmission and distribution systems are usually minimal. However, the constitution of an additional reserve to compensate for voltage fluctuations, allow for intermittence and provide the ability to cope with wind or sunlight shortages for longer periods can be added to the overall system costs.
Even so, the externalities in health and environment derived from the use of fossil fuels for power generation must always be weighed. Without this analysis, renewable energy will not be on equal terms. If the damage to human health caused by fossil fuels in electricity generation is analyzed in economic terms, together with externalities derived from CO2 emissions (assuming a cost of US $ 20 to 80 per tonne of CO2 ), the costs of generating electricity from fossil fuels increase by US $ 0.01 to reach US $ 0.13 per kWh (depending on the country and technology), so that the cost of electricity from fossil fuels is increased to a range between 0.07 and 0.19 United States dollars per kWh.
PERSPECTIVES FOR REDUCTION OF ADDITIONAL COSTS OF RENEWABLE ENERGY TECHNOLOGY
Let us return to this section the title of this article. The issue should not be "The potential for competitiveness of renewable energy in terms of costs", because the technologies of such energy are already competitive. The question we must ask ourselves is how to continue reducing costs and what are the challenges we face to achieve that goal.
This is the fundamental challenge we face today. The analyzes show that the history of the competitiveness of renewable energies presents many nuances. There are wide differences in terms of installation costs, not only between countries, but within the same country. Some of these differences are due to structural or project-specific issues, but many others can be addressed through more appropriate policies.
At the same time, there are opportunities for cost reduction in equipment and project design that are still to be exploited. However, at a time marked by the low cost of the equipment, future cost reductions could increasingly depend on the decrease in the costs of the project balance, as well as the costs of financing, maintenance and operation.
Unlocking this potential for cost reduction and reducing cost differences between markets will be essential to meet global economic, environmental and social objectives. The next stage in the extraordinary history of renewable energy will be marked by its underlying competitiveness. As some countries are discovering, among them, Chile, Jordan, the United Arab Emirates and India, renewable energy is currently, at present, the most economical source to meet their demand for electricity. However, the pace of this transformation will be too slow for our planet, despite the progressive increase in the competitiveness of renewable energies.
The time has come to take advantage of the opportunity to accelerate the development of this type of energy to meet our common objective of achieving a safe, reliable, affordable and ecologically sustainable energy sector. Because it has never been so cheap to do so and because it is an option that is increasingly emerging as an alternative capable of saving money for consumers both now and in the long term.
Lic. Cr. PMP Nicolas LISO FABBRI