Wind and solar power are the cheapest form of new electricity in most of the world today.
That’s the analysis of BloombergNEF, which predicts a tipping point in five years when it will be more expensive to operate an existing coal or natural gas power plant than to build new solar or wind farms.
The findings add to research showing why renewables are spreading in most power markets. Last week, the International Energy Agency said solar is starting to take over from coal as the cheapest form of electricity.
But there is an economic limit to the spread of those sources of clean energy, BNEF’s chief economist Seb Henbest said at the research group’s annual conference in London on Monday. There will come a point in every country that saturation point is reached because the technology no longer reduces generation costs compared with running the existing thermal generation fleet.
Those constraints suggest renewables will gain no more than 70 per cent and 80 per cent of the market for electricity generation, depending on local conditions. Even in Europe, which has some of the toughest policies encouraging renewables and discouraging fossil fuels, wind and solar are unlikely to surpass 80 per cent of supply.
That level of penetration “is far off in pretty much every market we look at,” Henbest said in a presentation outlining the first findings of BNEF’s New Energy Outlook, which is due to be published in full later this month. “We’re not going to reach these limits anytime soon and we can of course push past these limits.”
The shift toward renewables is likely to reshape a number of industries, especially the shipping business. A third of the cargo miles hauled by shippers comes from moving fossil fuels around the globe, and 70 per cent of that portion is oil, BNEF estimates.
As renewables take market share from oil, gas and coal, the shipping companies that deliver those fuels and keep it fed with machinery and pipelines will also suffer.
“There’s quite possibly a rebasing of shipping demand and rail demand, that might mean less energy consumption and lower emissions,” Henbest said.
More power for homes
Using electricity to heat homes and power cars could save energy and emissions, the report showed.
Driving an electric vehicle uses as much as three times less energy than a conventional combustion engine, BNEF said. Switching to heat pumps instead of traditional gas boilers would make warming buildings far more efficient by several multiples, according to the BNEF findings.
It estimates that melting down old steel and reforming it is five times more energy efficient than making the material from scratch.
In power generation, BNEF estimates that coal is also one of the most inefficient ways to make electricity since 65% of energy is lost in the process of burning the fuel. The energy lost in generating electricity from wind is almost zero.
The result, BNEF says, is that if renewables take a bigger share of the energy mix, the world will need less energy to generate the same amount of electricity.
“Overall, what this means is that we can get better end use energy efficiency from using electrical processes and technology downstream,” he said. “If we use renewables to generate electricity, we get gains mid-stream as well. Overall this translates into maybe say two to three times less primary energy supply.”
© 2020 Bloomberg L.P.