The role of photovoltaics and wind power in power supply must grow rapidly to form a truly sustainable energy industry. Consequently, the main challenge remains to implement these technologies in such a way as to minimize any additional costs for their integration. Sooner or later, it will be necessary to change policy and move from an isolated approach aimed at supporting individual technologies to setting long-term goals to minimize system-wide costs.
There are no technical barriers to increased integration of various renewable energy sources, such as solar and wind, into the grid. At low prevalence, grid connection costs will be negative or modest, but may increase as these technologies become more widespread. Even so, given the environmental effects of fossil fuels locally and globally, the cost of grid connection seems a much lesser evil, even if various renewable sources account for 40 percent of the total energy supply. In other words, all other things being equal and considering all external factors, renewables remain fundamentally competitive.
Each type of renewable energy has its own nuances when it comes to connecting to the electricity system, but the principle is the same in all cases: to meet the daily changing demand, a set of different production technologies in different locations will be required. Water, biomass, geothermal, and concentrated solar energy in thermal energy storage are basic, or controllable, technologies and present no particular problem for grid operations.
The additional system-wide costs that can be considered over and above the costs of generating energy from the various renewable sources are relatively small. The increase in costs in transmission and distribution systems is usually minimal. At the same time, system-wide costs may increase due to the need for additional reserve for voltage fluctuations and to account for cyclical changes in weather conditions so as not to cut off power supply during periods of weak wind or reduced solar intensity.
However, the environmental and health consequences of using fossil fuels as an energy source must also be considered. In the absence of such an analysis, renewable energy cannot compete on an equal footing with conventional energy. When the harm to human health from burning fossil fuels for energy production is considered in economic terms, as well as the externalities associated with CO2 emissions (based on values in the range of $20-80 per ton of CO2), the cost of fossil fuel energy production would increase by $0.01-0.13 per kWh (depending on the country and the technology used), which would increase the cost of fossil fuel-based electricity to $0.07-0.19 per kWh
Prospects for further reductions in the cost of generating energy from renewable sources
Back to the title of this article. “How Renewable Energy Can Become Price-Competitive” is not quite the right title, because renewable energy generation technologies are already competitive. The question should be how to reduce costs even further and what are the challenges in striving for that goal.
This is the key question we face today. IRENA’s analysis shows that the competitiveness of renewable energy has its nuances. The cost of installing equipment varies significantly, not only between countries, but also within individual states. Some of these differences are related to structural or project-specific issues, but in many cases this issue can be resolved through better policies.
At the same time, there remain untapped opportunities to reduce equipment and project costs. However, in an era of low equipment prices, further cost reductions are possible primarily through lower project balances, as well as lower activity, maintenance, and financing costs.
Realizing this cost reduction potential and reducing cost differentials between markets is crucial to achieving global economic, environmental, and social goals. The next step in the rapid development of renewable energy will be to make it more competitive. Countries such as Chile, India, Jordan, and the United Arab Emirates are gradually realizing that renewable energy is often the most economical way to meet electricity demand. But the pace of such change will be too slow for our planet, even as renewables become more competitive.
Now is the time to seize the opportunity and accelerate the spread of renewable energy to achieve our common goals of safe, reliable, affordable and sustainable energy. It can be done cheaper now than ever before, and this option will increasingly prove to be the most economical for consumers today and in the long term.
