Faster Than Expected

Some experts are expecting that solar will eventually take over as the king of the energy mix. And it may come sooner than anticipated. Soon,  solar power, as well as renewable energy (RE), will dominate the power basket according to a Bloomberg New Finance outlook released last June.

The solar photo voltaic panels cost for one is expected to drop by 66 percent by the year 2040 while onshore wind power will dip by 47 percent after 2040.

The report noted that solar costs are now already just one-fourth of its prices in 2009 while onshore wind has seen a 30 percent decrease in the last eight years. Off shore wind prices are also expected to drop by 71 percent, making this RE technology more attractive.

Presently, solar costs are already comparable to new coal power plants in the United States and Germany. By 2021, the same will happen to emerging markets like India and China. By 2020s, both countries are expected to have lower power prices with the countries’ aggressive investments in solar energy. The BNEF report noted that close to 39 percent or some $4 trillion of RE investments of the world are to be poured in China and India.

“These tipping points are all happening earlier, and we just can’t deny that this technology is getting cheaper than we previously thought,” said Seb Henbest, the lead author of the BNEF research.

Due to the falling costs of the two technologies, the BNEF outlook stressed that in 2040, solar and wind power combined will account for close to half of the world’s installed generation capacity, more than four times the current 12 percent share.

Naturally, the greater share of these renewable sources will displace coal and natural gas plants. The estimate showed that roughly 369 gigawatts (GW) of coal plants projects would likely be canceled, an amount that’s equivalent to the combined generation capacity of Brazil and Germany.

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At present, solar costs are already comparable to new coal power plants in the U.S. and Germany

Even the United States where President Trump signed an executive order to “start a new era of production and job creation” especially in the coal sector, will see coal capacity drop by half in 2040.

Europe’s coal capacity is also expected to slide by 71 percent given the region’s environmental laws that will make fuel burning cost more.

The new king of the renewable mix is indeed coming.

Unfortunately, for us Filipinos, we still yet have to see a dramatic increase in the renewables’ share in our power mix. While India, has already embraced technology and the benefits that a nation can reap from harnessing its resources properly, our country has remained in the same position for years. In the last two years, the share of renewables— solar and wind combined– only accounts for one percent.

As I have been saying, our energy planners remain fixed in their incorrect thinking about how expensive RE is. While the rest of the world have been sensitive to the development of the RE sector, we still insist on having our ‘quick fixes.’ We favor the least cost in terms of capital outlay for power plants but refuse to look at the additional cost that consumers will shoulder for our heavy dependence on fossil fuels.

We only need to look at the devastating impact on energy prices from history to see the risks of relying heavily on either coal or oil plants. In the 1990s, the Gulf War, for example, brought roughly 30 percent increase in the average spot price for crude oil.  According to the average unit price of crude oil increase in the country was approximately 56.1 percent.

We don’t even have to go as far as the 1990s. Just last year, our Energy Department officials warned of a possible disaster with the news that Indonesia has extended its imposed moratorium on coal exports to the Philippines due to the kidnapping of several Indonesian sailors in the Sulu sea by the Abu Sayaff.  We, after all, get 70 percent of our coal or 15 million tons for 2015 from Indonesia. A few years before that, Indonesia also changed its rules about coal exports which led to an even higher cost of generating power from coal.

A necessary consequence to all these is this: coal and other similar fossil fuel-based technologies will increasingly have difficulties in getting financing. Not only because financial institutions will institute policies to avoid fossil fuel technologies, but if at all, banks will have to shorten the tenors it will give to coal plants. Because of the expected decline in costs of RE technologies, the competitiveness of coal plants will increasingly decline.  Therefore, banks will have to lend, if at all, at much shorter maturities.  With shorter maturities come higher annuities.  This will make financing coal plants extremely difficult and uncompetitive.

All these points to one thing: Let us be like other countries, like our Asian neighbors India and China that have embraced and capitalized on developments of the RE. And part of it is welcoming fixed contracts in our energy mix to take advantage of the falling prices of RE technologies and having the maximum levels allowed in our Renewable Portfolio Standard (RPS), where power players are required to either source or produce a specified percentage from RE

Given that our Power Sales Agreements (PSAs) are ‘floating’ where risks such as price escalations of fossil fuel and foreign exchange rates are passed on to consumers, we need to have our fixed priced contracts to at the very least soften the blow on the negative impact of the ‘pass-on costs.’ Fortunately, renewables are in a good position to hand out those much needed fixed contracts.

While the rest of the world are embracing the lower costs of RE generation, we are still stuck in the old ways of thinking that fossil fuels and fixed price contracts are the correct formulae to our power rates woes.  Let us see the economic sense in investing and helping renewable energy flourish in our rich country.

If we want to maximize our abundance of RE sources in the country, which as many have said is the key to lower energy prices, then we must consider those fixed priced contracts for RE. And if we want to truly embrace and benefit from the falling costs of RE technologies such as what the recent BNFF report has noted, then we must be quick in adopting my above proposals. Otherwise, we will be left wondering years from now how and why we failed to find a solution to what seems to be never ending high electricity prices in the country, when in fact, the answer had been quite obvious.

References:

https://www.bloomberg.com/news/articles/2017-06-15/solar-power-will-kill-coal-sooner-than-you-think

http://www.philstar.com/headlines/2016/06/27/1597092/philippine-power-supply-jeopardized-indonesian-ban

Oil Price Shocks and Devefoping Countries: A Case Study of the Gulf Crisis by Sarah Ahmad Khan

More Reasons to Believe and Reflections by DiCaprio

The report, Renewables Global Futures Report: Great Debates Towards 100 % Renewable Energy, showed that the majority of energy experts expect a continuous drop in the costs of RE technologies within the next decade. The revelations of the report shouldn’t surprise anyone anymore. This isn’t the first time we have heard of such expression of confidence in the ability of RE to take the place of conventional power sources in the energy mix.

In terms of pricing, various experts have already predicted that solar is likely to be the next king. The Bloomberg New Energy Finance, for one, has already said that the global average of solar cost might be lower than coal by the year 2025, as solar prices have already dropped by 62% since 2009. In my own personal experience the cost of panels went down by 35% in a span of less than one year.

Recent developments around the world have given energy experts more reasons to believe that an RE domination is indeed plausible. I share this view.

For example, the Organization of Petroleum Exporting Countries or OPEC’s top producing nation, Saudi Arabia, is now investing heavily in renewable energy and its government intends to pour in $30 to $50 billion investments in renewables. The oil-rich kingdom is now in the planning stage of developing some 10 gigawatts (GW) of renewable energy by 2023, starting off with solar and wind plants in the northwestern part of the country.  This move would replace some 80,000 barrels of oil daily used to supply its energy needs.

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Solar panels at King Abdulaziz City of Sciences and Technology, Saudi Arabia. Photo c/o Reuters

Aside from the falling cost of RE globally, the world is moving towards making a significant shift as evidenced by the closure of coal plants.

The report Boom and Bust 2017: Tracking the Global Coal Plant Pipeline made by environmental groups, Greenpeace, Sierra Club and CoalSwarm showed that closure or retirement of coal plants is at an unprecedented pace as total capacity of closed coal plants totaled to 64 GW in the last two years.

The study also showed a slowdown in construction of new power plants as there has been a 48% drop in the preconstruction activity and 62% decrease in construction of new coal plants from January last year up to January 2017.  India and China combined, have frozen some 100 coal projects totaling to 68 GW.

Such developments only show that the world is moving towards greener forms of energy. But while there has been much progress in shifting to more renewable sources for the world’s energy needs, the report stressed that there are still challenges in developing renewable energy.

Social awareness on the benefits of RE sources is considered as a major hurdle, according to the report.  “The lack of awareness that renewables are already economically competitive was also considered problematic.”

Additionally, the study also stressed the need to address energy policies if we are to move towards greater use of RE.  “The absence of long-term thinking in energy policy and the lack of specific policies for the high penetration of renewable energy systems were also seen as huge challenges,” the report stressed.

Such thoughts of the authors only echo what I have been saying for quite some time now.  Our energy planners had failed to look at the long-terms effects of choosing traditional sources of energy over renewable ones without looking at how such a choice hurts our environment. For a long-time, many energy planners refusing to believe in the potential of RE sources of being a clean and inexpensive option. “Costs” as defined by current energy planners do not factor in risk. As a result, we can make seriously flawed options in our choice for energy source.

This penchant for only considering the short-term profits in energy planning is one of the topics tackled in the documentary, Before the Flood, produced by National Geographic and Oscar awardee, Leonardo DiCaprio. One of the interviewees in the documentary, environmental scientist, and director of the Penn State Earth System Science Center, Michael Mann noted how leaders and large global corporations have pushed the world into ignoring the effects of traditional sources of energy: “These people are engaged in an effort to lead us astray in the name of short-term, fossil fuel profits, so we end up in a degraded planet.”

Unfortunately, we are now suffering the consequences of our short-sightedness, refusing to believe in the potential of RE sources of being a clean and inexpensive option. DiCaprio, in the documentary, offered a reflection, which energy planners should be asking themselves: “Imagine the world right now if we’d taken the science of climate change seriously back then. Since then our population has grown by five billion people and counting. The problem has become more difficult to solve.”

There is, however, some glimmer of hope as some energy planners are now seeing the need to replace traditional sources of power with renewables as evidenced by the growth in investments in the sector. In 2015 alone, global investments in RE reached some $256.8 billion; double the amount poured in fossil power for the same year. The rise of renewables is undeniable, as even developing nations that suffer most from the effects of climate change are investing more in renewables compared to the rich countries. It seems like a great number of energy planners is seeing the value of choosing cleaner energy options.

Many planners still reject the idea of renewables dominating the energy mix, despite the recent development on RE, particularly, the falling costs of both wind and solar power prices. But perhaps the predictions by energy experts about the falling prices of RE, recent developments such as the one in Saudi Arabia, coupled with a strong campaign for renewables, will do the trick. Convincing energy planners and policy makers that the best way to move forward with our energy needs is to develop more renewable sources is a tedious task but must be done nevertheless.

References:

https://www.bloomberg.com/news/articles/2017-02-14/saudis-warm-to-solar-as-opec-s-top-producer-aims-to-help-exports

REN21 Renewables Global Futures Report

http://www.ren21.net/future-of-renewables/global-futures-report/

Boom and Bust 2017: Tracking the global coal plant pipeline

http://www.greenpeace.org/india/en/publications/Boom-and-Bust-2017/