By By Jeff McMahon
July 11th, 2019
Renewables will dominate energy markets in the United States because of their economics, even without the support of policy, some analysts agree.
The low price of renewables has driven the news this week not only of LA's record-breaking solar+storage deal but also Indiana's early exit from coal. And experts expect prices to continue to fall across the country:
"Especially in the case of solar pv, we expect the economics to continue to improve," said Mike O'Boyle, director of electricity policy for the think tank Energy Innovation.
Like the Ents marching on Mordor, renewables are coming for both coal and gas.
“Solar in the range of 2 to 4 cents is basically going to be available everywhere in 2025, with some uncertainty as to how fast costs will come down. But our research and the research of NREL suggest that cost decline is going to continue regardless of federal tax support.”
The cost of renewable energy will continue to decline, according to O'Boyle and other panelists in an Advanced Energy Economy webinar last week, largely because of four economic factors that inherently favor renewables:
1. Renewables Make Fossil Fuels More Expensive
Ron Lehr, former chairman, Colorado Public Utilities Commission: "As more wind and solar get added to the system, fossil units get ramped more and used less, so that’s going to drive up their per-unit cost."
Matt Langley, vice president of Pattern Energy: "As those generators get pushed off, their ramping gets more expensive, they can’t compete with our rates, so they end up mothballing or retiring. That frees up additional demand that those guys were serving that we can serve. It creates something of a virtuous loop. And that really is the most exciting part of this: as our velocity increases, the acceleration of the adoption also increases, primarily in my view because we are the most economic resource in most of the United States."
2. Loans Will Get Cheaper
Langley: "Our entire business is predicated on project finance and our ability to obtain project finance from some of the largest institutions in the world."
Lehr: "I think that as these projects become more mainstream, investors are going to realize that they’re not that risky and money’s going to get cheaper. And if that happens these prices will continue to fall.... The economics seem to be there, the private sector capital is starting to wake up to it, and I think there’s a bright future."
3. You Can’t Beat The Fuel Cost
Langley: "In a lot of ways we continue to build our own market and we continue to create a bigger market for ourselves. As we continue to price lower, we’re starting to push off a lot of other generation that can’t compete at those levels, primarily because we don’t have to compete for fuel."
Once renewables cover their capital costs, the energy is free. So in markets like Southern California, renewables can set the marginal price for power at zero if they want to, Langley said. That's not a sustainable market, he added, because eventually the price has to have a floor. But it's a difficult place for fossil fuels to compete.
4. They Compete With Fossilized Systems
Indiana isn't the only red state taking advantage of renewable resources. The Southeastern United States has abundant sun and wind, but many of those states have long-standing commitments to coal that will increasingly seem costly and wasteful.
Langley: "That really just reflects high quality resource combined with pretty expensive-to-run coal plants in vertically-integrated regions where those coal plants don’t really receive much competitive pressure. I think as these economic numbers become better understood…. those markets will open up. It’s already happening in Georgia and North Carolina, and I think that trend will continue."
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