With a remarkable reduction in the cost for wind, solar and battery technologies, coal and gas are facing a huge threat to their position in the world’s electricity generation mix, Bloomberg New Energy Finance (BNEF) said today.
The report on the levelized cost of electricity (LCOE) for all the leading technologies states that fossil fuel power is facing an unprecedented challenge in all the three roles it performs in the energy mix – supply of ‘bulk generation’, supply of ‘dispatchable generation’, and provision of ‘flexibility’.
In bulk generation, the threat comes from wind and solar photovoltaics – both of which have reduced their LCOEs further in the last year owing to the falling capital costs, improving efficiency and the spread of competitive auctions around the world.
In dispatchable power – the ability to respond to grid requests to ramp electricity generation up or down at any time of day – the challenge to new coal and gas is coming from the pairing of battery storage with wind and solar, enabling the latter two ‘variable’ sources to smooth output, and if necessary, shift the timing of supply.
In flexibility – the ability to switch on and off in response to grid electricity shortfalls and surpluses over periods of hours – stand-alone batteries are increasingly cost-effective and are starting to compete on price with open-cycle gas plants, and with other options such as pumped hydro.
“Our team has looked closely at the impact of the 79 per cent decrease seen in lithium-ion battery costs since 2010 on the economics of this storage technology in different parts of the electricity system. The conclusions are chilling for the fossil fuel sector,” said Elena Giannakopoulou, head of energy economics at BNEF.
She added that some existing coal and gas power stations, with sunk capital costs, will continue to have a role for many years, doing a combination of bulk generation and balancing, as wind and solar penetration increase. However, the economic case for building new coal and gas capacity is crumbling, as batteries start to encroach on the flexibility and peaking revenues enjoyed by fossil fuel plants.
BNEF calculated LCOEs for each technology, taking into account equipment, construction and financing costs, and also operating and maintenance expenses and average running hours. It found that in the first half of 2018, the benchmark global LCOE for onshore wind is $55 per megawatt-hour, down 18 per cent from the first six months of last year, while the equivalent for solar PV without tracking systems is $70 per MWh, also down 18 per cent. Offshore wind’s LCOE is $118 per MWh in the first half of 2018, down 5 per cent. Read More