Barriers to intermittent renewables and battery storage tumbling down

by Mike Scott, April 5, 2019

Global battery growth projection to 2030 - source: BNEF

The astonishing growth of the renewable energy sector shows little sign of slowing, as costs continue to plummet, along with the cost of energy storage, to remove many of the barriers to using intermittent renewable generating sources in a range of applications. Much of this is down to the fact that the cost of battery energy storage is one third lower than this time last year.

A third of the world’s total electricity generating capacity is now renewable, new figures show, with almost two thirds of all new electricity generating capacity now zero-carbon and emerging and developing economies leading the way in growing the market.

The latest report from the International Renewable Energy Agency (IRENA) shows that clean energy capacity grew by 171GW, or 7.9%, with the overwhelming majority of that coming from solar and wind energy. More than half of new capacity (61%) was added in Asia but Oceania saw the fastest rate of growth, with a 17.7% increase in capacity last year. Asia was second, with Africa’s 8.4% increase putting it third.

The growth in the sector is being driven by the compelling business case as much as because of the need to decarbonise, said IRENA Director-General Adnan Z. Amin. Analysis from Bloomberg New Energy Finance shows that onshore wind and photovoltaic solar have continued to plummet down the cost curve, falling by 10% and 18% respectively to $50/MWh for onshore wind and $57/MWh for solar projects starting construction in early 2019. But the cost of batteries and offshore wind in particular have fallen even further, down by 35% and 24% respectively.

“The strong growth in 2018 reflects an ongoing shift towards renewable power as the driver of global energy transformation,” Amin said.

However, despite the rapid growth in renewables, growth in non-renewable sources has shown little sign of slowing down, with growth on average of about 115GW per year since 2000. While fossil fuel capacity has dropped in Europe and North America, it has been replaced by rapid expansion in Asia and the Middle East since the turn of the century.

As a result, “renewable energy deployment needs to grow even faster, to ensure that we can achieve the global climate objectives and Sustainable Development Goals,” Amin added. “Countries taking full advantage of their renewables potential will benefit from a host of socioeconomic benefits in addition to decarbonising their economies.”

Solar continues to be the most popular technology, with additional capacity of 94GW, 24% growth on the previous year. The biggest markets were all Asian – China, India, Japan and South Korea, while the USA, Australia and Germany were also big markets. However, there was also significant growth in some newer markets, including Brazil, Egypt, Pakistan, Mexico and Turkey.

Wind power, with 49GW of new capacity, lags some way behind solar, with China (20GW) and the USA (7GW) accounting for more than half of growth between them. Other 1GW+ markets were Brazil, France, Germany, India and the UK.

China was the only market to add a significant amount of hydropower capacity last year, at 8.5GW, and it also led the way in bioenergy.

Despite this, hydro still accounts for around half of global installed renewable capacity (1,172GW of the 2,351GW total), with most of the rest comprising wind (564GW) and solar (480GW) assets, IRENA’s annual Renewable Capacity Statistics 2019 says. At current growth rates, solar will overtake wind in terms of installed capacity within the next few years. However, the staggering year-on-year cost reductions in the price of solar power, which have been driven by the enormous expansion programme in China, may be coming to an end.

Although the LCOE of solar PV has fallen 18% in the last year, a huge proportion of the reduction was the result of a slowing of Chinese expansion that led to a huge global supply glut of modules. If the government does not take its foot off the brake, that will affect the entire global market.

Nonetheless, the growth in renewable capacity is likely to accelerate over the next few years, as the burgeoning in green generation capacity is complemented by increasingly cost-competitive battery energy storage. Bloomberg New Energy Finance, in its most recent report on the Levelized Cost of Energy (LCOE) has revealed that the cost of lithium-ion storage is more than a third cheaper than a year ago, with a MWh of storage falling 35% to $187/MWh.

This is making hybrid solar-battery and wind-battery projects increasingly competitive with traditional coal and gas generating assets in a range of applications, such as frequency management and peak power provision, without subsidies.

Tifenn Brandily, energy economics analyst at BNEF, said: “Solar PV and onshore wind have won the race to be the cheapest sources of new ‘bulk generation’ in most countries, but the encroachment of clean technologies is now going well beyond that, threatening the balancing role that gas-fired plant operators, in particular, have been hoping to play.”

Another notable development has been the continued fall in the price of offshore wind, once seen by many observers as a technology that would struggle to cut costs significantly for a decade or more. Yet in the last year, the LCOE for offshore wind has fallen by almost a quarter (24%), driven by the switch to auction programmes for new capacity and the successful development of much larger turbines, which bring massive increases in the amount of power each turbine can generate.

Just five years ago, the MWh cost of offshore wind was more than $220/MWh. Today it is below $100/MWh.

Elena Giannakopoulou, head of energy economics at BNEF, commented: “The low prices promised by offshore wind tenders throughout Europe are now materializing, with several high-profile projects reaching financial close in recent months. Its cost decline in the last six months is the sharpest we have seen for any technology.”

And that despite the fact that “the LCOE per megawatt-hour for onshore wind, solar PV and offshore wind have fallen by 49%, 84% and 56% respectively since 2010. That for lithium-ion battery storage has dropped by 76% since 2012, based on recent project costs and historical battery pack prices.”

The economics and the technological capabilities of renewables and energy storage mean they are now in a position to dominate the energy landscape in coming decades and reduce the stranglehold of traditional fuel sources over the market.

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Can nuclear compete for a bigger role in the transition?

by Paul Evans and River Bennett, February 15, 2019

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With plans to phase out coal-fired generators in most of Europe, nuclear is trying to compete with gas to become the most viable baseload power source to accompany renewables on the path to net-zero emissions. Both technologies have their advantages. Gas is competitively priced while nuclear generates power with almost no emissions. Right now, gas’s cost advantage is evidently great enough to tip the balance.

If nuclear advocates are to distill the debate down to a straight-up contest they must first demonstrate that nuclear generation can be competitive on cost. River Bennett and Paul Evans believe there are significant opportunities for savings which could do just that.

The lesson from Hinkley Point is that nuclear power must supply cheaper electricity in order to compete with natural gas. In 2012 prices, the plant delivers electricity at a strike price of £92.50 per megawatt hour – significantly higher than even expensive offshore wind projects and natural gas in the UK. Dieter Helm, a professor of energy economics at Oxford University, estimates that if Hinkley Point were financed through government borrowing rather than private capital it would have been roughly half the cost. This may seem a brazen subsidy, but since the public is already footing the bill through electricity prices and other direct subsidies, such a strategy would effectively save the British-taxpayer billions. Simply changing the financing model would have reduced the Levelized Cost of Energy (LCOE) to a cost in line with natural gas, but with 40 times lower carbon emissions.

Cost of baseload technologies with 3%, 7%, & 10% cost of capital:

However, allocating more taxpayer cash to nuclear projects is not necessary to reduce costs.

A 2018 report by the Energy Technology Institute, a government-backed research body, showed that huge savings are possible with simple modifications. Kirsty Gogan, the report’s author, commented that, “just by implementing best practices and achieving economies of scale it would be possible to obtain cost reductions of 30-40%”. This cost reduction is not a project manager’s spreadsheet-built fantasy either. The construction of similarly designed nuclear power plants in South Korea can deliver an LCOE of $51.37 (£39.61) per megawatt hour, even when financed with private capital at 10%.

Perhaps the most important takeaway from the ETI report is that the main cost determinant for nuclear new build is whether the plant design is complete before breaking ground. Design modifications that take place during construction have proven to significantly increase construction length and overall cost. New builds for similar designs to those experiencing overruns in the UK are being delivered at competitive prices in countries like the UAE and China. Costs came down further when the companies constructing those plants had more experience. Adopting these best practices can also improve the financing conditions of a power plant through reducing costs and risk – allowing “the borrowing of less capital, at a better rate, and with a shorter payback time” according to Gogan.

Finally, the majority of existing light water reactor designs, including Hinkley Point, are capable of operating far past their originally-licensed 35-40 year life spans: these extensions can vastly improve the economics. In the United States a number of plants are already obtaining 20 year extensions to keep generating into their 50s and beyond. Dominion Energy, the utility that manages Surry Nuclear Power Plant in Virginia, has already filed to extend the plant’s life to 80 years.

In the medium-term new technologies known as small modular reactors (SMRs) show promising cost reduction potential without compromising safety. One such technology designed by the Oregon-based company NuScale Power has already made it through the first stage of licensing at the U.S. Nuclear Regulatory Commission. NuScale also has interested utility customers in the state of Utah and most recently The Kingdom of Jordan. Modular reactors have promise since they are designed in part to reduce the length, risk, and costs associated with large-scale infrastructure projects, accomplishing much of the reactor construction as a manufactured product. Producers hope to capture similar economies of scale as the aircraft industry where Boeing and Airbus mass produce complex engineering projects.

Whilst the cost reductions with SMRs are important, they are far from revolutionary. We are not going to see electricity ‘too cheap to meter’. NuScale Power estimates they can provide electricity at an LCOE of $99 per megawatt hour for private investors and $67 per megawatt hour for a state or municipal client, with further cost reductions of up to 20% for multiple reactors. This also assumes a plant life-cycle of 40 years, which in most cases is extended. In the best-case scenario this is at a cost as low as coal when considering the whole life-cycle of the plant, and even before taking into account negative externalities from carbon emissions. Compared with gas though this is more economical, particularly in Europe. NuScale CMO Thomas Mundy commented that “beyond $5/MMBTU our technology is competitive with Combined Cycle Gas Turbines”. At the National Balancing Point, Europe’s most liquid gas exchange, natural gas has been traded at a spot price above $5/MMBTU since August 2017.

Nuclear power becomes even more economically interesting if you factor in a carbon price. Carbon prices in the European Union, measured via the Emissions Trading System (ETS) effectively tripled in 2018 – outperforming any other commodity. Research by Mckinsey Energy Insights shows that even low carbon prices will encourage the use of gas over coal, but prices above $30 per ton could make gas less attractive. With a higher carbon price and the use of best practices for plant construction, nuclear energy might just stay in the race.

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River Bennett is a researcher for the Nuclear Innovation Alliance and currently pursuing graduate studies in nuclear engineering (twitter: @riverbennett)
Paul David Evans is a graduate student of International Energy at SciencesPo Paris. (twitter: @_pauldevans)

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