There’s little debate surrounding the ultimate future of the energy industry. Hint: it’s renewable. Simply put, the way of finite resources is just that – helplessly bound to end. When, and at what rate, we transition to renewable energies is much less clear, however.
The current, largely unofficial, U.S. renewable electricity target is 20 percent by 2030. The Energy Information Administration is less optimistic and projects that renewable generation won’t surpass 20 percent until 2040, and only if oil prices rebound and remain high (greater than $100 per barrel).
Still, others believe that a 100 percent renewable future is possible, and even attainable – at a price tag of around $14 trillion – by 2050. Reality lays somewhere in between, though it’s closer to the high-end than one might expect. (Related: Oil Price Rebound Looking Unlikely)
In 2014, approximately 13 percent of U.S. electricity was generated from renewable sources, hydropower included. The figure has since risen – and it’s wind and solar doing most of the work. Through May of this year, solar and wind have accounted for 74 percent of all new capacity additions. In all, renewables are expected to account for 91 percent, or more than 18 gigawatts (GW), of all electric generation capacity additions in 2015. The build rush will continue in 2016, before tapering due to regulatory uncertainty.
Fueling the rapid capacity growth are swiftly dropping unit prices. System prices fell roughly 10 percent in 2014, and similar declines are expected in both 2015 and 2016. In Texas, solar power bids are coming in at under 4¢/KWh – some of the lowest globally to date. In fact, at roughly 5.70¢/KWh when not including a 30 percent tax credit, the Texas solar deals are cheaper than any other source of energy besides wind power. But topping that, First Solar just signed a 20-year power purchase agreement at 3.87¢/KWh in Nevada, which could actually claim the mantle of the cheapest source of electricity in the United States.
The cost of solar power continues to beat projections and the unsubsidized levelized cost of energy is inching closer to complete parity with natural gas. (Related: OPEC, Get Ready For The Second U.S. Oil Boom)
The National Renewable Energy Laboratory (NERL) estimates that renewables growth will have to continue at a rate of 19-22 GW/year toward 2020, before ramping up to 32-46 GW/year by 2040 in order to achieve renewables penetration of 80 percent in the electric power sector by 2050. Such growth is unlikely to transpire, but the agency concludes that, with technologies that are commercially available today and a more flexible electric system, such a goal is possible. What remains is the political and social will, coupled with a fair bit of system retooling, to accomplish such a task.
Despite the falling prices, there remain economic and practical limits to the level of renewable penetration in our generation profile. That level is largely bound by the power source’s capacity factor and the economic carrying capacity of the grid. The capacity factor, or amount of power a plant produces relative to its potential, for wind and solar ranges from 20 to 50 percent and 10 to 30 percent, respectively.
To address the issue briefly, as the grid penetration of variable sources like wind and solar increases, the economic returns for those producers fall at a rate much faster than that of the market as a whole. Put another way, solar and wind capacity systematically reduce electricity prices at the very time solar and wind generators produce the most electricity. The more of each on the grid, the less they make. (Related: Midweek Sector Update: What The Iran Deal Actually Means For Oil Markets)
Furthermore, the grid, as currently constructed, is hardly optimized for renewable deployment. As penetration increases – and exceeds the capacity factor – wind and solar will occasionally generate up to, and sometimes more than, 100 percent of total demand. What cannot be exported or otherwise stored must be curtailed.
Systems stabilizing conventional generation and lumbering baseload plants necessitate further curtailment. An NERL study for the Western U.S. suggests variable renewable sources must be limited to around 55 percent of total demand.
This is to say nothing of the greening of the transportation sector, which presents it own, unique set of barriers. By 2050, the Rocky Mountain Institute estimates that 50 percent of U.S. vehicle fleet will be electrified – extremely positive growth, though far from fully green.
To be clear, the renewable energy revolution is already well underway, and the next few years will see remarkable growth. However, the next and final steps will require large-scale, top-down, adaptive measures to ensure a thorough, and above all, timely transition. Those who can provide cost-effective energy storage and efficient transmission stand to gain the most.
By Colin Chilcoat of Oilprice.com
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