The Clean Energy Light at the End of the Tunnel

High carbon energy's days are numbered.  A report from IRENA, the International Renewable Energy Agency, predicts a 40% drop in the cost of renewable energy over the next few years.  That should more than offset the recent drop in oil prices and consign the highest cost/highest carbon fossil fuels to the dustbin of history.

IRENA's report, "Renewable Power Generation Costs in 2014, states that biomass, hydropower, geothermal and onshore wind are all competitive with or cheaper than coal, oil and gas-fired power stations, even without financial support and despite falling oil prices. The report was released at IRENA's annual conference in Abu Dhabi this month.

Solar photovoltaic (PV) power generation is leading the cost decline, with solar PV module costs falling 75% since the end of 2009 and the cost of electricity from utility-scale solar PV falling 50% since 2010.

In a separate report issued by Deutsche Bank this month, the cost to generate power through solar power was predicted to drop by 40% over the next three to four years. Deutsche Bank has also reported that the cost of rooftop solar power is expected to beat coal and oil-fired plant energy costs in just two years.

All of this is in keeping with the warning UBS, the world's largest private bank, circulated to its clients this summer.  The bank warned investors that conventional power utilities were on their way out due to the cost efficiency of solar power and battery technology advancements.

In language more closely associated with green NGOs, the bank with assets of more than $1.5tn says it expects a paradigm shift away from large-scale conventional power plants. “Power is no longer something that is exclusively produced by huge, centralised units owned by large utilities. By 2025, everybody will be able to produce and store power. And it will be green and cost competitive, ie, not more expensive or even cheaper than buying power from utilities,” say the authors, who urge their financial clients to “join the revolution.”

“Solar is at the edge of being a competitive power generation technology. The biggest drawback has been its intermittency. This is where batteries and electric vehicles (EVs) come into play. Battery costs have declined rapidly, and we expect a further decline of more than 50% by 2020. By then, a mass [produced] electric vehicle will have almost the same price as a combustion engine car. But it will save up to €2,000 (£1,600) a year on fuel cost, hence, it will begin to pay off almost immediately without any meaningful upfront ‘investment’. This is why we expect a rapidly growing penetration with EVs, in particular in countries with high fossil fuel prices.”

The expected 50% reduction in the cost of batteries by 2020 will not just spur electric car sales, but could also lead to exponential growth in demand for stationary batteries to store excess power in buildings, says UBS. “Battery storage should become financially attractive for family homes when combined with a solar system and an electric vehicle. As a consequence, we expect transformational changes in the utility and auto sectors,” it says. “By 2020 investing in a home solar system with a 20-year life span, plus some small-scale home battery technology and an electric car, will pay for itself in six to eight years for the average consumer in Germany, Italy, Spain, and much of the rest of Europe.”

Clearly this is the death knell of Harper's bitumen boosters. Institutional investors won't want to tie up their assets in long-term commitments to high carbon fossil fuel production.