The Energy Transition dilemma: it ain’t only a matter of costs $$$ …
The data speak for themselves:
for at least 6 or 7 years now, the cost per megawatt hour of renewable energy has been lower than that of traditional fossil fuels.
also
the cost of solar in the last 10 years has fallen by 90%, thanks to economies of scale in the production of panels, but also thanks to technological developments that have made the modules increasingly efficient.
On the contrary, in the last decade, the cost of production of energy from traditional sources has remained substantially unchanged — net of geopolitical issues: the technologies for extraction, transport and refining have not seen particular developments that could have contributed to a reduction in prices.
Indeed, over the years the cost of some fossil raw materials has increased, and recently more than ever, due to supply difficulties and other factors, such as wars and unfavorable geopolitical situations.
The question, therefore, arises: why is the world still so dependent on gas, oil and coal?
GREENER ENERGY, BUT IS NOT ENOUGH.
Something is actually happening, albeit very slowly. In 2019, 72% of the world’s newly installed energy capacity came from renewable sources, and in the last 20 years, the share of energy from non-fossil sources has even tripled.
However, these are still small numbers that fail to make a significant impact on overall CO2 emissions. Also because, according to estimates by the U.S. Department of Energy, between 2000 and 2020 the use of natural gas has more than doubled, and although it has 60% lower emissions than coal or oil, it certainly cannot be considered a zero impact energy source.
CHANGES to COSTS $$$
What is the reason for this resistance in the migration towards renewables?
Well, the problem is mainly related to the costs of change. If it is true that the construction of a new renewable plant is cheaper than the construction of an old type of plant, this is not true when it comes to conversion. Modifying a coal-fired power plant is uneconomical, and that’s what makes big energy companies unwilling to invest in conversion.
As Ashley Langer explains in Popular Science, energy-producing countries, led by the United States, are in an energy lock-in.
Old fossil fuel plants have now been fully depreciated, and the marginal cost of producing an additional unit of energy is practically close to the cost of the fuel.
On the other hand, the cost of production of the same unit of energy in a renewable plant is, in the immediate future, very high because it discounts the costs for the construction of the new plant.
It is obvious that this is short-sighted reasoning, but it meets the expectations of investors, whose goal is to maximize profits from their actions, linked to traditional energy production.
POLITICS COME TO RESCUE… OR NOT?
Politicians are not renowned for their incisiveness when it comes to develop and efficiently implement legislative frameworks in which the renewables energy industry could thrive; on the contrary the contracts that bind mining companies, which provide fossil fuel, with energy producers, usually have very long durations and guarantee thousands of jobs.
In short, they are very delicate social and economic balances, to which no ruler willingly puts his hand and potentially see his/her mandate being jeopardized…
… too many incentives and interests are at stake …
TECHNOLOGY: A FORCE OF GOOD
But we come to the real key player: technology could once again come to our aid.
According to analysis, the lifetime cost per megawatt hour, i.e. the cost calculated over the entire life cycle of the plant, is approaching $30, compared to the $41 needed to increase the capacity of an existing traditional plant.
We have (and we still are) witness a significant drop in prices $ to access renewables — according to a new report by the International Renewable Energy Agency (IRENA), unsubsidized renewable energy is now most frequently the cheapest source of energy generation.
The report finds that the cost of installation and maintenance of renewables, which was an important stumbling block to mass adoption, continues on a downward trajectory. Adding to existing efforts made by governments and businesses, these lower costs are expected to propel the mass adoption of renewables even further, potentially meeting the ambitious goal of carbon neutrality and ZERO emissions by 2050 as auspicated by the International Energy Agency (IEA).
THE ROAD IS STILL UPHILL … YET PROMISING
One of the very worst misconceptions about the challenge of climate change is that it is an easy problem to solve…
unfortunately it IS NOT… and the transition hasn’t been easy
The reason we can hope for a bright future for the industry and a more rapid deployment & adoption of renewables is the fact that they follow a steep learning curve — which fossil fuels don’t; investments have been limited and investors reluctant in deploying capital due to the perception that renewables were risky because of high cost, leading to high lending rates for individuals and businesses that need funding for renewable power generation.
But that view has changed, and as shown in the graph below — capital have been poured into the constantly growing industry:
Capital deployment, together with other components embedded in a mix of increasing profitability , growing incentives in developing the network and last, but not least the limiting climate change — a race against time — deeply influencing humanity and its quest for survival on the planet.
It is therefore clear that a decisive role in the energy transition will be played by governments, for example by favoring with advantageous tax regimes the construction of green plants, the hiring of personnel within these structures and the relocation in the labor market of those who are currently employed in the traditional energy sector.
For updates & the latest news and analysis — follow me on Twitter @FilandroMi
Extra Resources:
- Humanity & Energy: an intertwined, timeless relationship
https://medium.com/coinmonks/mankind-and-energy-an-intertwined-relationship-d29e7602ca51 - The COSTS of Climate Change:
https://mirev89.medium.com/the-cost-of-climate-change-97d6b23163e8 - The ENERGY DEBATE and why change is so painfully slow:
https://medium.com/the-capital/the-energy-debate-why-we-dont-bother-changing-the-current-system-5a9c60a10a1d - Where does BITCOIN fit into the Energy narrative:
https://medium.com/the-capital/bitcoin-the-energy-debate-b25ca499d3e5 - Learning Curve of Renewables — credit to Himalaya Bir Shrestha:
https://towardsdatascience.com/learning-curve-effect-on-the-global-variable-renewable-energy-deployment-73d1e28da390 - AI & Machine Learning effects in renewables’ future:
https://www.forbes.com/sites/forbestechcouncil/2021/11/30/how-artificial-intelligence-and-machine-learning-are-transforming-the-future-of-renewable-energy/?sh=6567aefc541b - Competitive Price $ for Nuclear Energy:
https://world-nuclear.org/information-library/economic-aspects/economics-of-nuclear-power.aspx - Cost of Electricity by source:
https://en.wikipedia.org/wiki/Cost_of_electricity_by_source - Renewables generation costs $ in 2020 by IRENA:
https://www.irena.org/publications/2021/Jun/Renewable-Power-Costs-in-2020 - Reaching ZERO emission by 2025 — study by IEA:
https://www.weforum.org/agenda/2021/05/net-zero-emissions-2050-iea/
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