Cost to Produce Renewables Drops Below Fossil Fuels for the First Time in History
Transformative changes with staying power rarely happen in the blink of an eye. They begin like tsunamis in the middle of the ocean: quietly and almost unnoticeable at first. In economic terms, they usually follow a moderate growth curve for a long time until a tipping point reveals and releases the power they silently carry. From electricity in the early 1900s to the Internet at the end of the 20th century, every technology we take for granted today followed a similar path of calm, then rapid, growth unleashed by an inflection. Where the inflection point between slow and accelerated growth happens depends on several factors: the most clearly identifiable are economics (the point at which technologies become cost-competitive to the alternatives they replace) and consumer adoption (the point at which their use goes beyond just the geeks and early adopters). Happily, it seems like the economics and the consumer adoption of renewable energy has reached this point.
Last June, we wrote a post, U.S. Reaches a Clean Energy Milestone, about the fact that renewables now account for 10% of all U.S. electricity generation. At that time, we called it an “unstoppable wave,” pointing out that it’s all about economics and adoption―even in places where fossil fuels are abundant, like Texas, which leads the nation when it comes to the installation of wind turbines. Today, we revisit our “unstoppable wave” position and examine if this premise still holds true, especially from an economic viewpoint.
Big waves, even tsunamis, start quietly.
Wind and Solar: The Wave Becomes a Tsunami
A few days ago, Forbes published an article on renewable energy that began with the following statement: “For the first time in history, the production cost of renewables is lower than that of fossil fuels.” Such a bold claim requires data; therefore, Forbes dug deeper, citing data that came from an analysis conducted by Bloomberg, The Frankfurt School, Renewable Cost Database of the International Agency for Renewable Energy (IRENA), and UN Environment. Specifically, their analysis reveals that the cost range per megawatt-hour for the production of renewable energy today stands at $35 to $54 versus $49 to $174 for fossil fuels.
This is significant data at many levels. First is the cost: renewables are not only cheaper to produce now, but they are getting cheaper every year (projected to reach $30 by the end of this year according to the article), while fossil fuels, being the mature industry that they are, are not getting any cheaper. Second is the range: while the cost of renewables has a $19 spread, fossil fuels have a 5X range ($125), which is a level of unpredictability that businesses will not tolerate for long, given the growing range of alternatives. Third are the social costs that we do not see: the externalities of burning our way to prosperity―from health to greenhouse carbon emissions―that are incalculable for fuels like oil, and negligible for energies like wind and solar.
Forbes goes on to suggest that this affordability resulted in an 18.8% increase in electric power generated by renewables in 2017, which set a new record of 98.9 terawatt-hours. From the economics perspective, it seems like this wave is still, indeed, unstoppable; and the pace of green energy expansion continues to accelerate, even in the United States.
Hydrogen: Are We Witnessing the Genesis of Another Tsunami?
While the analysis that Forbes cited focused on solar and wind, which today constitute the bulk of renewable power generation for electricity, the cost of new technologies that make wind and solar even more effective, like hydrogen, have also reached a record low. A recent article published by WindPower Monthly presents a similar cost analysis for hydrogen generated by surplus wind. Hydrogen produced in this manner helps the grid to continue to supply electricity from renewables when there is no sun or wind to feed it energy.
The article indicates that the cost of hydrogen generated in this manner may fall below that of natural gas by the 2030s, based upon cost projections from the International Energy Agency (IEA): “Natural gas prices are set to rise steadily until the 2040s, from €0.017/kWh in 2020 to €0.032/kWh by 2030 and €0.041/kWh by 2040.” WindPower Monthly further reports, “IEA analysts forecast that production costs for hydrogen generated by wind power are set to fall from about €0.18/kWh to €0.13/kWh by 2020, to €0.12/kWh by 2030, and to between €0.021/kWh and €0.032/kWh by 2040.”
What this means is that, just like solar and wind, the Internet, and electricity, hydrogen is beginning to follow the typical growth curve for transformative technologies. If we add the new ways to produce affordable clean energy from hydrogen, like the work we are doing with Hydrogen 2.0, the mainstream adoption of hydrogen cars (like the Toyota Mirai and the Honda Clarity), and the use of hydrogen fuel in aircraft and shipping, the tipping point for this kind of energy may be closer that analysts predict. As a result, the hydrogen economy may also quietly come in a wave whose improving economics can make it equally unstoppable.
In the Sustainable World of the Future, Nobody is Left Behind
We live in a world that requires a healthy mix of all available energy resources at our disposal so that the gap that 100 years of energy progress has not been able to close―1 billion of us without electricity access―is finally eliminated. This, more than the rise or fall of any one energy, will be the truly transformative change that we need.
As the Hydrogen 2.0 ecosystem gains momentum, we’ll be sharing our views and insights on the new Hydrogen 2.0 Economy. We also update our blog every week with insightful and current knowledge in this growing energy field.