The latest assessment by Bloomberg New Energy Finance of comparative costs worldwide shows an 18% improvement in the competitiveness of onshore wind and solar in the last year, and new and rapidly developing roles for battery storage.
The result is that because of steep reductions in the cost of wind and solar technologies and battery storage the coal and gas supply are facing an increasing threat to their position in the world’s electricity generation mix.
BNEF’s latest report on the levelised costs of electricity for all the leading technologies finds that fossil fuel power is facing an unprecedented challenge in all three roles it performs in the energy mix – the supply of bulk generation, the supply of dispatchable generation, and the provision of flexibility.
In bulk generation, the threat comes from wind and solar PV, both of which have reduced their LCOEs further in the last year, thanks to falling capital costs, improving efficiency and the spread of competitive auctions around the world.
In dispatchable power – the ability to respond to grid requests to ramp electricity generation up or down at any time of day – the challenge to new coal and gas is coming from the pairing of battery storage with wind and solar, enabling the latter two ‘variable’ sources to smooth output, and if necessary, shift the timing of supply.
In flexibility – the ability to switch on and off in response to grid electricity shortfalls and surpluses over periods of hours – stand-alone batteries are increasingly cost-effective and are starting to compete on price with open-cycle gas plants, and with other options such as pumped hydro.
Elena Giannakopoulou, head of energy economics at BNEF, commented: “Some existing coal and gas power stations, with sunk capital costs, will continue to have a role for many years, doing a combination of bulk generation and balancing, as wind and solar penetration increase. But the economic case for building new coal and gas capacity is crumbling, as batteries start to encroach on the flexibility and peaking revenues enjoyed by fossil fuel plants.”
BNEF calculates LCOEs for each technology, taking into account everything from equipment, construction and financing costs to operating and maintenance expenses and average running hours. It found that in the first half of 2018, the benchmark global LCOE for onshore wind is $55 per MWh, down 18% from the first six months of last year, while the equivalent for solar PV without tracking systems is $70 per MWh, also down 18%. Offshore wind’s LCOE is $118 per MWh in 1H 2018, down 5%.
BNEF has been analysing the numbers on levelised costs of electricity for the different technologies since 2009, based on its database of project financings and work by its analyst teams on the cost dynamics in different sectors.
In that nine-year period, the global benchmark LCOE for solar PV without tracking has fallen by 77%, and that for onshore wind by 38%. LCOEs for older established sources, such as coal, gas, nuclear and large hydro, have seen only very modest reductions, at best, in that time – and in some countries, they have actually increased. BNEF’s lithium-ion battery price index shows a fall from $1,000 per kWh in 2010 to $209 per kWh in 2017.