Future of energy is renewables

Future of energy is renewable energy (RE) - solar and wind.

RE is fast growing in electricity sector

Renewable power capacity grew by more than 200 GW in 2019 (mostly solar PV), the largest increase ever, raising the RE share in power capacity to about 27%. Now, 32 countries have RE capacity of at least 10 GW each.

RE adoption has been slow in other sectors

However, RE has been slow to gain prominence in cooling and heating industries and especially in transport industry, which remain the domain of the fossil fuels. These industries account for around 83% of total energy consumption, compared to 17% energy represented by electricity.

Progress in developing RE has been achieved thanks to effective government policies. This is where the three industries differ significantly.

Declining cost of renewable energy

Energy transition to clean energy makes economic sense, without any government subsidy.

International Renewable Energy Agency (IRENA)'s latest report shows RE cost in 2019 being lower than cheapest coal energy. This report covering period upto 2019 shows global average cost of 6.8 US cents/kWh for solar PV in 2019 and the lowest record auction price at less than 3 c/kWh for plants to be built.

More recently, we have seen solar PV bidding at lower than 1.5 c/kWh in UAE and USA. This is not only lower than electricity cost from conventional coal and gas fired plants but even lower than just their fuel costs.

It means we can keep conventional power plants (for periods of no or low solar) and develop and run new solar to reduce overall costs. If battery storage becomes economic (and the signs are that we are getting there), we can rely on solar energy to the extent that we can retire existing conventional power plants and make savings.

UAE has set the world records of lowest solar energy costs

UAE has been setting world records for the lowest levelized costs of electricity (LCOE) in procuring cheapest solar PV energy in recent years.

LCOE is the standard measure to compare cost of electricity produced by various projects or bidders. LCOE for any project is the ratio between net present value (NPV) of total payments and NPV of total energy produced over the life of the project or contract term.

Solar PV projects procured in Abu Dhabi and Dubai secured bids that were lowest LCOEs in the world at the time. The latest solar PV project in Abu Dhabi has the LCOE of 1.35 US cents/kWh.

There are a number of factors driving the solar energy costs down such as competition, optimal risk allocation in contracts, technological advancements, economies of scale, high energy yields and low interest rates.