- Renewable energy prices have fallen far more quickl than the industry anticipated, says a new report.
- And they are fast becoming cheaper than fossil fuels.
- A rapid transition to emissions-free ‘green’ energy could save many trillions of dollars in energy costs - and help combat climate change.
The global energy sector has an impressive record of scaling-up renewables like wind and solar – but it is not so good at predicting future price changes of the clean energy these renewables produce, according to a new report.
Researchers at the University of Oxford’s Institute of New Economic Thinking suggest early pricing prediction models have consistently underestimated both how far the costs of renewable energy sources might fall, and the benefits of an accelerated switch to clean energy.
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Solar power is a good example of renewable energy. As the chart above shows, price forecasts in the International Energy Agency’s (IEA) World Energy Outlook reports consistently underestimate the real-world fall in solar energy prices.
Early renewable energy price forecasts failed to account for the substantial infrastructure cost improvements of technologies like solar photovoltaic installations and wind turbines, the report notes. Annual solar energy prices were forecast to fall 2.6% on average in the decade following 2010, for example, with all forecasts predicting a less than 6% price reduction.
What's the World Economic Forum doing about the transition to clean energy?
Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.
Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.
Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.
Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.
To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.
Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.
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But solar prices fell 15% – more than five times the predicted annual rate – during this period, which could have serious implications for investment and policy decisions based on these misleading predictions.
Forecasting a renewable future
The study analyzed past and present data from industry bodies like the International Renewable Energy Agency (IRENA) and the IEA, together with current technological developments in renewables, to predict the future price trends of more than 50 clean energy technologies.
The findings show that compared to continuing with today’s carbon-intensive, fossil-fuel-based system, a rapid transition to emissions-free ‘green’ energy could produce overall net savings of many trillions of dollars. And that’s without considering the impact of climate damage or the positive co-benefits of climate policy.
Technological innovation has continued to help bring down the cost of some renewables; a fact which earlier price prediction models overlooked, according to Matthew Ives, a senior researcher at the Oxford Martin Post-Carbon Transition Programme, and co-author of the report.
“They’ve been getting these forecasts wrong for quite some time,” he told Ars Technica. “You can see we’ve consistently broken through those forecasts again and again.”
The cost of sustainability
Solar energy was first used to supply electricity to satellites in space. Since coming down to Earth, design and manufacturing innovation, supply chain advances and mass adoption of sustainable energy have seen the costs of this and many other renewable technologies tumble.
The energy transition has increased both demand and application of sustainable energy sources like solar, offshore and onshore wind. Scaled up, these technologies can create a cycle where greater deployment leads to even lower prices, prompting increased demand.
Innovations that reduce the price of manufacturing solar panels and wind turbines also reduce the cost of the electricity they produce when these technologies operate at scale – but this hasn’t happened to the same extent with fossil fuels like coal.
In 2010, the price of one megawatt hour (MWh) – a weighted average cost of electricity – of solar electricity was $378, which fell to $68/MWh in 2019 – a more than five-fold decrease in the cost of solar energy. Offshore and onshore wind also saw dramatic price reductions.
Despite being the world’s largest source of electricity, over the same period, the global price of power from new coal fell from $111 to just $109.
While the price of solar fell 89% and wind power fell 70%, the cost of electricity from coal saw a comparatively slight 2% reduction.
So will the price of renewable energy continue to fall?
While nobody can accurately predict the future, the cost of many renewable technologies continues to fall year on year. And while the fall-rate may slow down in the coming years, renewable energy is fast-becoming cheaper than fossil fuels, a recent IRENA report states.
Which is good news for the economy and good news for global efforts to reach net zero emissions by 2050, as we strive to keep temperatures within the Paris Agreement’s 1.5℃ climate target.
“Today, renewables are the cheapest source of power,” said IRENA’s Director-General Francesco La Camera. “Renewables present countries tied to coal with an economically attractive phase-out agenda that ensures they meet growing energy demand, while saving costs, adding jobs, boosting growth and meeting climate ambition.”