Renewables: FAQ

What are realistic expectations for wind and solar, given current technology?

Despite the challenges, it is likely that wind and solar energy will play a significant role in our energy future. The cost of energy produced from solar panels and wind turbines has declined significantly. Continuing declines in the cost of photovoltaic solar panels may open up much larger markets for rooftop solar while similar improvements in the cost and performance of wind turbines may make large-scale on- and offshore wind farms economically viable in the coming decades. Taken together, these continuing developments may allow wind and solar energy to grow from present levels, which are negligible globally, to something on the order of 15 or 20 percent of global electricity generation over the next three or four decades. Few detailed energy technology assessments, however, expect wind and solar to account for a significantly larger share of global electricity, much less primary energy, without fundamental breakthroughs across a range of technologies, including much more efficient solar cells and utility scale energy storage technologies.

Can biofuels scale up significantly?

Biofuels once fueled virtually all transportation and other forms of labor such as pasture lands that fed horses, oxen, and other domesticated animals that humans utilized for transport and agriculture. Today, we have more technologically advanced ways to convert biomass into transportation fuels. But despite decades of efforts to improve these technologies, we haven’t made much progress in improving the land efficiency of biofuel production and conversion. Current generation technologies to create biofuel from corn and sugar cane require vast expanses of agricultural land and often compete with crops for food production. As a result, food prices increase as well as pressure to convert forests to agricultural land, particularly in the tropics.

Next-generation technologies to create cellulosic fuels from agricultural waste, or from more land efficient crops such as switchgrass, are somewhat less land intensive, but would still require vast resources – water, land, and fertilizers – to produce fuels that would displace petroleum at significant scale. Very advanced technologies to produce fuels from algae or other microorganisms might allow for much more land efficient fuel production, but those technologies are still highly speculative.

How much more do renewables cost in comparison to other sources?

It depends on what you count. For some consumers in some places, the cost of electricity from rooftop solar photovoltaic panels is comparable to the retail cost of grid electricity. But that doesn’t reflect the full costs. In the United States, the federal investment tax credit subsidizes about one-third of the cost of buying and installing solar panels.23?Other subsidies at the state level frequently augment that subsidy. Net metering policies in many states provide even more subsidies, requiring utilities to buy back power from solar producers at several times the effective rate at which they could purchase power on the wholesale market.

The US Energy Information Agency attempts to make “apples-to-apples” comparisons of the cost of different electricity generation technologies by estimating the “levelized cost of energy” (LCOE). LCOE is an estimate of the unit costs of electricity generated by different technologies, typically expressed in dollars per megawatt-hour ($/MWh) after public subsidies are accounted for.

LCOE, however, does not capture the full costs of different energy technologies. All energy technologies impose indirect costs of one form or another in addition to the direct costs calculated through LCOE. Due to its capital-intensive nature, for instance, nuclear power faces substantial upfront financing costs.26?The burning of fossil fuels impose substantial externalized costs on society, in the form of public health costs and climate change, along with the often substantial costs of procuring and transporting fuels. Renewable energy technologies create unique “system costs” in addition to the direct costs of generating power.27

Solar and wind require backup sources of energy to meet load demands when the renewable resources are unavailable. Solar and wind capacity must be overbuilt and backup from more reliable energy sources, such as gas, hydro, nuclear, and coal, must be on call to deal with fluctuations and shortfalls in generation.

broadly defined, include the costs of backup generation, storage, and overbuilt renewables capacity; balancing, voltage control, and curtailment costs of intermittent power; and the cost of transmitting power over long distances from the point of generation to load centers.

The costs associated with overbuilding, firming, and backing up intermittent renewables are modest at low penetrations. But at higher penetrations they become substantial. Germany is today scaling back its renewable subsidies and mandates in part because costs associated with backing up its growing renewable energy capacity have grown substantially.

While intermittent renewables carry costs that LCOE calculations fail to account for, they also bring unique benefits that can also be undervalued. A benefit of solar power, for instance, is that in sunny, warm areas, solar panels can produce at their highest capacity when daily electricity demand peaks. This can make the value of solar power high enough to justify its higher relative costs. However, these benefits decline as renewables penetration increases. Above 10 to 20 percent of electricity generation, the value of solar power to a grid declines substantially. Wind power sees less decline in its value to the grid as penetrations rise, but that is because its value to the grid compared to solar power is lower to start with, as wind generation fluctuations are less usefully or predictably correlated with demand load.

In some locales, most notably Northern Europe, peak load occurs in colder months, when sunlight is exceptionally scarce, further lowering the capacity value of technologies like solar power.

These issues might be resolved through the development of utility-scale energy storage technologies. However, those technologies do not yet, for the most part, exist and will also entail not insignificant additional costs to electrical systems.

Isn’t the cost of solar coming down rapidly?

As deployment of solar panels has risen over several decades, the cost of manufacturing solar panel modules has declined consistently. Between 2007 and 2012, solar panel costs declined precipitously. Recent rates of rapid cost declines are not expected to continue by most industry analysts, however. The recent price declines have been driven by over-production as much as real reductions in actual production costs. Heavy solar subsidies in developed countries, like the United States and Germany, combined with heavy production subsidies in China and other developing countries created a global glut of solar manufacturing capacity and solar module inventories. Chinese firms, in particular, have been accused of dumping excess production capacity at below the cost of production in key export markets such as the United States and Europe. Trade actions taken by the United States Trade Commission and the European Community have alleged that Chinese dumping has depressed the price of solar modules by as much as 75 percent.

Actions to scale back solar subsidies in many parts of the world have triggered a consolidation within the industry, with module inventories declining and manufacturing facilities closing. As this has occurred, module prices have begun to rise. Over the longer term, module costs will likely revert to long-term cost trends, with prices coming down more slowly. Declining module costs, however, will have a less pronounced effect on solar system costs going forward then they have in the past. This is because module costs no longer represent the lion’s share of total solar costs.

While module costs have fallen, other costs associated with solar panels have not. Because solar technology in general, and rooftop solar most of all, tends to be more distributed than conventional power plants like natural gas or nuclear plants, solar systems typically have a much higher ratio of installation, permitting, interconnection, and other non-hardware costs in relation to the cost of producing the actual hardware and fuel. While “soft costs” of this nature can also see returns to scale, they don’t spill over from one economy to another in the same way that hardware costs do. Solar modules are a globally traded commodity, where cost reductions in, for instance, Chinese manufacturing, benefit solar costs everywhere. The same is not the case with regard to skilled labor and services. Labor-intensive economic services tend to get more, not less, expensive over the long term.

But isn’t the fact that renewables are more distributed an advantage over conventional energy technologies?

At lower levels of generation, distributed generation sited close to demand load can provide substantial benefits in the form of avoided costs of transmission and capacity. However, as illustrated above, these marginal benefits decline as penetration increases.33

Most renewable energy isn’t actually distributed or decentralized. Hydroelectric power, which constitutes the vast majority of renewable energy generation, is highly centralized. Energy from biomass, which also constitute large shares of renewable generation, is generated at centralized power stations. Much of the bioenergy produced in Europe, for instance, is generated at coal power stations that have been converted to burn wood pellets. Even most solar and wind energy today is generated by large, centralized wind and solar farms, not decentralized sources.

Any future in which renewables constitute a much larger share of our energy mix is likely to see more centralization not less. All the major scenarios modeling large penetrations of renewable electricity foresee the vast majority of renewable energy, including wind and solar, coming from large power plants, requiring massive, new long-distance transmission infrastructure and not home and commercial installations.

Would renewables be more economically competitive without subsidies for fossil fuels?

While fossil fuels worldwide enjoy more absolute subsidization than renewable energy, fossil fuels also supply vastly greater quantities of energy than do renewables. Calculated as subsidy per unit of energy generated, fossil fuels receive vastly lower subsidies than renewables like wind and solar. Moreover, these subsidies represent a very small portion of their per-unit cost of energy.?While there may be good reason to remove subsidies for fossil energy as a matter of policy, particularly in developed economies where universal access to modern energy has long been a reality, there is little evidence to suggest that removing fossil energy subsidies would substantially reduce fossil fuel dependence or increase renewable energy deployment. A large share of global subsidies for fossil fuels are actually in the developing world, where governments often subsidize access to electricity and modern heating, cooking, and transportation fuels for poor communities.35?In these cases, removing subsidies would be unlikely to result in poor communities in developing economies turning to renewable energy sources, which remain substantially more expensive. Removing these subsidies, however, would, in the near term, almost certainly reduce access to modern energy services in many developing economies.

Can emerging economies “leapfrog” from wood and dung to distributed renewables?

Off-grid solar and wind energy can help the rural poor meet some of their energy needs. They are cleaner than wood and dung and, in some contexts, cheaper than diesel generators. Off-grid renewables technologies, in these circumstances, can offer an important first step up the “energy ladder.” But as with conventional energy technologies, there is little market for these technologies among the global poor without substantial public aid. Given enormous global need and limited public resources, efforts to extend

modern energy services to poor communities throughout the world must account for how access to those services might most cost-effectively be extended. One recent study, by the Center for Global Development, found that tens of millions more sub-Saharan Africans can achieve electricity access using centralized, gas-fired generation than current off-grid renewable technologies.

Strategies to extend energy access through off-grid renewable energy systems must also account for a broader development context. If off-grid and micro-grid solutions to provide access to modern energy services are to be successful, they must 1) facilitate “productive uses” of energy, or energy consumption that spur economic development; and 2) function in a way where connection to the central grid is achievable at some point in the future.?Installing off-grid generation technologies without considering these conditions risks partitioning the process of expanding energy access from the broader processes of urbanization, industrialization, democratization, and economic growth.