Global cost-effectiveness of renewables revealed amid fears over domestic energy security

New analysis has highlighted the need for policymakers and investors to exploit the global cost-effectiveness of renewable power generation, as the Renewable Energy Association (REA) casts a doubt over the UK Government's willingness to prioritise energy security in post-Brexit negotiations.


Speaking at the RWM event in Birmingham yesterday (13 September), the REA’s chief executive Nina Skorupska explained discussions between the association and the Government since the referendum had left her concerned that low-carbon energy projects will not be at the forefront of talks with Brussels.  

“When I met with civil servants over the summer and asked if energy was in the top five priorities of Government during the negotiations for Brexit, they could not confirm and could only assure me it was in the top 10,” she said. “So not withstanding that uncertainty, we are saying energy is what we need to be thinking of.

“The impact on the energy sector so far has been focused on the investor confidence level. There’s been a stall because this amount of uncertainty contributes to people wondering whether the UK is the right place to invest. Smaller renewable energy projects which can be deployed much faster than Hinkley Point C could provide the energy security that the Government wants through a cost-effective approach.

“Focusing inwards and delivering a UK specific energy strategy, renewables could contribute to that very quickly. We do need to see a clear move from the Government very soon about what its particular priorities will be.”

Cheap renewables

Skorupska’s comments arrive as fresh evidence reveals that renewable power generation costs are lower, on average, worldwide than those of fossil fuels. According to new analysis published today (14 September) by the Carbon Tracker Initiative, policymakers and investors must urgently recognise the advances in technology prices, with clean energy plants set to become even more cost-competitive by 2020.

The study finds that the direction of travel, forged by the implementation of Intended Nationally Determined Contributions (INDC) of the Paris Agreement post-2020, will see renewables on average more cost-competitive even if fossil fuel prices fall and carbon prices are modest at around $10/tCO2 or lower.

“Policy-makers and investors really need to question out dated assumptions on technology costs that do not factor in the direction of travel post-Paris. Planning for business-as-usual load factors and lifetimes for new coal and gas plants is a recipe for stranded assets,” said Carbon Tracker’s head of research James Leaton.

‘Safe bet’

Based on the declining usage rates of thermal power stations, the analysis highlights that reduced load factors and shorter lifetimes for coal and gas plants undermines the economics of these power stations in a decarbonised world. It forecasts the load factor of coal and gas plants will fall to 42% and 31% respectively by 2020.

The report suggests that developers typically assume coal and gas plants will operate 80% and 60% of the time, yet the global average in 2013 was just 59% and 38% respectively. This makes each unit of power generated look more expensive, as the capital cost has to be recovered over a shorter time. Moreover, the combination of lower cost capital with cheaper technology for solar and wind will improve the relative competitive position of renewables, the analysis suggests.

The report reflects a growing trend of renewable energy advances undermining the economics of fossil fuels. A major UN-backed report found that renewable energy sources added more generation capacity than all other technologies combined in 2015, with a world record total of £286bn invested in renewables across the globe.

Clean energy investment in the second quarter of 2016 reached $61.5bn, 32% below the $90bn spent in the equivalent period of 2015, according to the latest data from Bloomberg New Energy Finance (BNEF). An EY report recently revealed that renewable energy sources continue to remain “safe bets” for investors as clean energy transactions thrived in the second quarter of 2016 amid ongoing global market volatility.

George Ogleby

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