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The drumroll of positive news about the falling cost of
renewable power and the opportunity to meet the world's growing
electricity demand with cleaner sources keeps getting louder, as
recent reports from the International Renewable Energy Agency
(IRENA) and the American Council on Renewable Energy (ACORE)
indicate.
The cost of renewable sources of energy continued to fall in
2020, making them the cheapest source of power, according to a
report by IRENA, "Renewable Power Generation
Costs in 2020," released 22 June.
Meanwhile, ACORE reported that optimism about prospects for
renewables in the US is at an all-time high for both investors and
project developers, as they anticipate a rebound from a challenging
2020 due to the COVID-19 pandemic and the extension of tax credits
for new installations.
IRENA: Cheaper than coal
IRENA said the share of renewable energy that achieved a lower
cost than the most competitive fossil fuel option, which is coal,
doubled in 2020 to 162 GW, or 62% of total renewable power
generation. Since 2010, IRENA estimates 644 GW of renewable power
has been added globally at a cost below fossil fuel options.
In 2020 compared with 2019, IRENA said the global
weighted-average levelized cost of electricity from concentrating
solar power fell by 16%, onshore wind by 13%, offshore wind by 9%,
and solar photovoltaic technology by 7%.
"Today, renewables are the cheapest source of power," said IRENA
Director-General Francesco La Camera in a statement. "Renewables
present countries tied to coal with an economically attractive
phase-out agenda that ensures they meet growing energy demand,
while saving costs, adding jobs, boosting growth, and meeting
climate ambition."
With costs at such low levels, renewables increasingly undercut
the cost of existing coal-fired plants, the report said. More than
800 GW of existing coal-fired capacity could be replaced with
cheaper renewables, which would reduce power generation costs by
more than $32 billion annually and avoid around 3 gigatons of CO2
emissions per year, the report said.
"Low-cost renewables give developed and developing countries a
strong business case to power past coal in pursuit of a net-zero
economy," the report said. "Just 2020's new renewable project
additions will save emerging economies up to $156 billion over
their lifespan."
Low-cost green hydrogen within reach?
IRENA's outlook for 2022 estimates global renewable power costs
will fall even further, with onshore wind becoming 20% to 27% lower
than the cheapest new coal-fired generation option.
Another key finding is that PV costs are now so low—3
cents/kWh and lower in Qatar and the United Arab Emirates—that
they might be able to support the types of hydrogen projects that
are being proposed in many parts of the world. "Surprisingly,
values below 2 cents/kWh are not impossible, even if they were
unthinkable, even a few years ago," IRENA said. "These very low
solar PV price levels imply that low-cost renewable hydrogen may
already be in reach."
IRENA put the potential cost of hydrogen with ultra-low-cost PV
power as low as $1.62/kg of hydrogen. "This compares favorably with
the hypothetical cost of natural gas steam methane reforming, with
today's carbon capture, utilization and storage, costs at between
$1.45/kg and $2.40/kg," it said.
According to IHS Markit estimates, the cost
of producing green hydrogen from splitting water molecules by
electrolysis that is powered by renewable electricity is $4-$5/kg.
In comparison, the cost of producing "blue" hydrogen from fossil
fuels equipped with carbon capture or from renewable natural gas
captured from landfills is estimated at $1.50/kg-$2/kg, said
Alexander Klaessig, research director for IHS Markit's Hydrogen and
Renewable Gas Forum.
Abu Dhabi-based IRENA is an intergovernmental organization that
supports countries in their transition to a sustainable energy
future.
ACORE: Optimism in US
With utilities recognizing the benefits of adding renewables
capacity, investors in the US are more optimistic than ever about
placing their money in the sector, according to a report from
ACORE, "Expectations for Renewable
Energy Finance in the US: 2021-2024," released in
mid-June.
In a survey of investors and power developers, ACORE found
record-high levels of confidence in the future of renewable energy
and energy storage. For the renewable energy sector, investor
confidence in the industry's potential through 2024 increased by an
average of eight points to 87 points (out of 100), and developer
confidence increased by nine points to 85 points. For storage,
investors rated their confidence at 85, and developers at 82.
This came despite a COVID-19-related drop in investment, ACORE
said. The US renewable generation sector attracted $54.4 billion in
asset finance investment in 2020, a 12% decrease from 2019, with
wind power seeing the biggest dropoff.
This is expected to turn around this year. "More than two-thirds
of surveyed investors (68%) report plans to increase their
investments by more than 10% this year compared to 2020," ACORE
said. "Notably, 70% of companies that invest greater than $100
million annually plan to increase investment by more than 10%
compared to last year."
Also, 94% of investors rated the US as "attractive" for
renewables investments, compared with other countries, and 71% of
them said they expect the US to remain attractive or become more
attractive over the next four years.
Developers also reported that they are planning to move
aggressively. "All the companies that operate renewable energy
businesses with revenues greater than $1 billion plan to increase
their activity," ACORE said.
Developers cited the extensions of federal tax credits
for renewables in December 2020 as a key development. As part
of a COVID-19 recovery bill, Congress extended a series of tax
credits for developers of solar, wind, fuel cell, geothermal,
biomass, incremental hydroelectric, and other renewable energy
projects.
Depending on the type of project, a developer can qualify for a
tax credit for projects started by 31 December 2021 or a later
date, with a sliding scale of the amount of the credit based on
timing of construction and the type of investment. For example, the
investment tax credit for offshore wind projects that start
construction as late as 2025 is 30%, and solar projects started in
2020-2022 qualify for a 26% credit.
Survey respondents said the most popular investment areas for
the next three years are energy storage and utility-scale solar.
Other forms of solar, as well as offshore and onshore wind, rated
highly as well, while emerging technologies such as green hydrogen
and wave power rated lower in the relatively short-term period.
One impediment for developers is finding a partner to take
advantage of the tax credits. "Investors and developers continue to
report shortages in tax equity in 2021, as also observed in ACORE's
2020 surveys. Forty-six percent of investors and 35% of developers
indicate that tax equity availability has either 'decreased' or
'significantly decreased' within the past year," ACORE said (see
graph). "By contrast, 50% or more of investors report an increase
in the availability of each of the other surveyed financing
sources."
To some extent, this reflects that investors' tax
liability—which could be reduced by credits purchased from
renewables' developers—fell due to the economic downturn from
COVID-19, ACORE said. As it has said in the past, ACORE believes
switching the tax credit to a direct-pay subsidy that is not
dependent on linking to an investor's or buyer's tax liability
would incentivize additional renewable power investment.
Source: ACORE
While noting overall positives for renewables and energy
storage, ACORE also observed that the industries have a long way to
go to meet the US' needs in the energy transition. For example, the
US storage sector attracted $1.2 billion, and electric vehicle
infrastructure another $800 million—both of which are
records—but ACORE added that "grid-enabling technology sector
continues to fall below its potential."
The same can be said for the power grid itself. ACORE estimated
that utilities invested $1.9 billion to connect renewable
generation in 2020, up from $1.2 billion in 2019. But ACORE said a
report last year from the American Clean Power Association shows
$89 billion will be needed for transmission lines between 2020 and
2030 to reach 50% renewable generation in the US.