Outlook for renewables cost of electricity

Christian BreyerProfessor for Solar EconomyLappeenranta University of TechnologyElectricity markets in disruptionResearch Seminar by SET, EL-TRAN, BCDC, NCE Helsinki, May 11, 2016

Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi2

Key questions

• What are the cost trends for renewable electricity?• What are the benchmarking costs?• Are costs an indicator for prices?

Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi3

Cost trends for renewable electricity

Cost trends are driven by demand growth!!

4 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Growth of demand: solar PV and Wind

source: REN21, 2015. Renewables 2015 – Global Status Report

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PV capacity expectations and role of IEA

2DS hi-Ren NPS 4502030 2839 GW 1799 GW 1721 GW 1927 GW 728 GW 938 GW2040 4988 GW 3687 GW 3199 GW 3277 GW 1066 GW 1519 GW

source: Greenpeace, BNEF, IEA

Key insights:• leading reports show at least 2-4 times higher numbers

than IEA WEO for 2030 and 2040• IEA WEO is lagging behind due to assuming wrong growth• Greenpeace and BNEF had been close to real numbers in

the past 10 years• forecasts of fossil fuel companies such as Shell, BP and

ExxonMobil are as conservative as the IEA WEO

source: EWG, 2015. IEA creates misleading future scenarios for solar power generation, working paper

Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi6

Demand for solar PV: preliminary NCE results

source: Breyer Ch., 2016. First Insights on the Role of solar PV in a 100% Renewable Energy Environment based on hourly Modeling for all Regions globally, Global Photovoltaic Conference, Daegu, April 6

Remark: assuming 100% sustainable energy systems and modeled 2030 results may be finally achieved by 2050

• 13.6 TWp demand for 100% RE and 2030 demand due to integrated scenario• integrated scenario covers only about 45% of total primary energy demand (TPED)• net zero constraint requires almost full electrification of all energy sectors• almost all TPED can be electrified (except some industrial processes)• 26.5 TWp demand for 100% RE and 2030 demand for full sector integration

• 2030 TPED may be about 60% of TPED for 10 billion people on current European level• 41 TWp demand by end of 21st century

• factor of 100 for long-term demand growth leads to stable learning curve progress

7 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Solar emerges as the least cost energy source

source: ITRPV, 2014. International Technology Roadmap for Photovoltaic – 2013 Results, ITRPV supported by semi

latest tenders in Germany

3rd phase tenders in Dubai

8 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Solar PV Dynamics

Lappeenranta University of Technology• both systems on the right are part of a 220 kWp

commercial solar PV system• it is financially beneficial for the university source: Kosonen A., Ahola J., Breyer Ch., Albó

A., 2014. Large Scale Solar Power Plant in Nordic Conditions, 16 th

EU Conference on Power Electronics and Applications, August 26-28

source: Vartiainen E., Masson G., Breyer Ch., 2015. PV LCOE in Europe 2015-2050, 31st EU PVSEC, Hamburg, September 14-18

In 2030, even at very high discount rates (nominal 10%), solar PV will provide attractive economics all over the world

• PV LCOE based on EU PV Technology Platform report and EU PVSEC 2015 paper (lead author Fortum solar technology manager Eero Vartiainen)

Stockholm52 €/MWh

Toulouse41 €/MWh

Malaga30 €/MWh

Texas26 €/MWh

Chile22 €/MWh

2030 assumptions Utilisation (h) Applied to all locations:Stockholm 1070 CAPEX 470 €/kWp (base case 50 MWp)Toulouse 1380 OPEX 10.5 €/kWp/a (base case 50 MWp)Malaga 1840 Discount factor 10%India 1860 Inflation 2,0%Australia 2100 Lifetime 30 yearsTexas 2150 Initial degradation 1,0%South Africa 2200 Continued degradation 0,5%/aChile 2500 Note that performamnce ratios and hence utilisation hours are expected to increase by 7.5% points from 2015 to 2030

South Africa25 €/MWh

India30 €/MWh

Australia27 €/MWh

10 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Very high EV Dynamics

Global EVs in use

Tesla Model 3: most successful product launch in industrial history, worth 14 bnUSD

11 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Cost comparison to other power technologies

• utility PV already competitive with new gas and coal fired power plants• solar PV lower in cost than gas and coal from about 2015 onwards• solar PV and wind are the least cost power sources from about 2015 onwards• STEG significantly higher in cost than solar PV• new nuclear already higher in cost than solar PV (despite of nuclear subsidies)

12 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Cost comparison of ’cleantech’ solutions

source: Agora Energiewende, 2014. Comparing the Cost of Low-Carbon Technologies: What is the Cheapest option; Grubler A., 2010. The costs of the French nuclear scale-up: A case of negative learning by doing, Energy Policy, 38, 5174

Key insights: PV-Wind-Gas is the least cost option nuclear and coal-CCS is too expensive nuclear and coal-CCS are high risk technologies 100% RE systems are highly cost competitive

Preliminary NCE results clearly indicate 100% RE systems cost about 55-70 €/MWh for 2030 cost assumptions on comparable basis

source: Breyer Ch., 2016. First Insights on the Role of solar PV in a 100% Renewable Energy Environment based on hourly Modeling for all Regions globally, Global Photovoltaic Conference, Daegu, April 6

13 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

What is the key problem?

“Climate Change presents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen.”

N. Stern, Economics of Climate Change, 2006

14 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

New installed capacities in the Nordic and FinlandKey insights

• Development in Nordic and Finland rather comparable

• Finland significantly more nuclear and coal

• Nordic favours more wind and less bioenergy

’old’ public investments in hydro and nuclear heavily distort the market for new investments for private investors

15 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Subsidies heavily distort the market

Key insights:• global energy subsidies are almost fully allocated for

fossil (and nuclear) fuels• fossil fuel subsidies are as large as global

expenditures for the health sector• military related cost still excluded• RE would grow much faster if harmful fossil-nuclear

subsidies would be phased-out

16 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

What’s about subsidies? – Case of Germany

source: FÖs, 2014. Was Strom wirklich kostet

Key insights: there are subsidies for RE subsidies for fossil-nuclear are higher nuclear got AND get the highest

subsides per kWh of all technologies subsides in total are 649 b€ (fossil-

nuclear) plus 102 b€ (RE) in 1970-2014 total societal costs of of RE are lower

than those of fossil-nuclear energy

17 Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi

Case of Germany – failed market

• May 9, highest RE electricity in the system in history (about 90%, no technical failures)• inflexible nuclear and lignite coal did not exit the market• collapse of prices down to minus 130 €/MWh• high exports (e.g. pumped hydro in Austria in charging mode during daytime)

Outlook for renewables cost of electricityChristian Breyer ► christian.breyer@lut.fi18

ConclusionsGuiding questions:• What are the cost trends for renewable electricity?• What are the benchmarking costs?• Are costs an indicator for prices?

Conclusions:• Major renewables demonstrate a stable cost decline creating least cost solutions• Supporting technologies boost that trend (first batteries, later PtX)• New ’cleantech’ alternatives cost about two times more than 100% RE systems and

for significantly higher societal risks• Electricity markets fully collapsed, mainly due to wrong price signals• Subsidies have to be eliminated, such as CO2 emission subsidy, heavy metal

emission subsidy, liability insurance subsidy, cost for military conflicts, etc.• Level playing field for renewables: either full inclusion of fossil-nuclear subsidies or

compensation for this failed market!• Investors heavily suffer due to wrong price signals based on failed fossil-nuclear

subsidies

Thanks for your attention … … and to the team!

The authors gratefully acknowledge the public financing of Tekes, the Finnish Funding Agency for Innovation, for the ‘Neo-Carbon Energy’ project under the number 40101/14.