Rapid cost declines made renewable energy the United States’ cheapest available source of new electricity, without subsidies, in 2017. In many parts of the U.S., building new wind is cheaper than running existing coal, while nuclear and natural gas aren’t far behind. As renewable energy costs continue their relentless decline, they keep pushing fossil fuels further from profitability – and neither trend is slowing down.
This dynamic is apparent in the decade spanning 2008-2017, where nearly all retired U.S. power plants were fossil fuel generation, and was capped by utilities announcing 27 coal plant closures totaling 22 gigawatts (GW) of capacity in 2017. The U.S. Energy Information Administration (EIA) forecasts coal closures will continue through 2020, potentially setting an all-time annual record in 2018.
Despite Trump Administration actions to improve fossil fuel economics and reduce renewable energy competitiveness, updated levelized cost of energy (LCOE) data and new renewable energy projects show clean energy continues beating fossil fuels on economics, at a faster pace and in more locations than ever before. So just how low can renewable prices go?
Levelized Cost of Electricity Plummets for Wind and Solar
The 2017 edition of Lazard’s annual Levelized Cost of Electricity (LCOE) study, released in December, shows renewable energy continues to decline (dramatically, in the case of utility-scale solar photovoltaics) in cost. LCOE accurately compares the economics of different generation technologies by measuring the total cost of first building a power plant, then operating it over its assumed lifetime. Think of it as evenly comparing apples to oranges.
Unsubsidized onshore wind and utility-scale solar are both cheaper than new coal in many parts of the U.S., and are cost-competitive with combined-cycle natural gas on a levelized cost basis. In the words of Tom Sanzillo, Director of Finance for the Institute for Energy Economics and Financial Analysis, “clean energy is now cheap energy.”
Lazard reports the mean subsidized LCOE for utility-scale solar fell 72% from $178 per megawatt-hour (MWh) in 2009 to $50/MWh in 2017, while the mean LCOE for wind energy fell 47% from $85/MWh to $45/MWh over the same time span. These declines outstripped the cost trends for natural gas-combined cycle (down 27%), coal (down 8%), and nuclear (up 20%) from 2009 to 2017.
As Technology Costs Fall, Wind and Solar Installations Rise
The changing cost dynamic between renewable energy and fossil fuel is spurring coal closures along with new wind and solar installations. As the weighted LCOE for utility-scale solar fell from more than $350/MWh in 2009 to less than $50/MWh in 2017, cumulative installations rose from 1 GW in 2009 to more than 30 GW cumulative installed capacity in the third quarter of 2017.
Onshore wind is even cheaper and more widespread than utility-scale solar, declining from around $135/MWh and around 35 GW installed capacity in 2009 to less than $45/MWh and more than 85 GW installed capacity in 2017.
These numbers are translating into record-low prices for new renewable energy generation. In December 2017, GTM Research’s Colin Smith flagged a 15-year power purchase agreement (PPA) signed by Austin, Texas between $23.50-$27.25/MWh for a 150-megawatt (MW) solar project, as the lowest U.S. utility solar photovoltaic deal. In early January, Xcel Energy announced that developers responded to their RFP for new generation capacity (to help replace two coal-fired power plants) with median bids for new wind at $18.10/MWh, wind and solar at $19.90/MWh, and wind and solar with battery storage at $30.60/MWh. And while not located in the U.S., the Canadian province of Alberta awarded 600 MW of unsubsidized new wind contracts in December 2017 at a median price of $29.60/MWh.
Lazard emphasizes wind and solar LCOE vary greatly by region – these technologies are cheapest in the windiest and sunniest locations – but the net result of fast-falling costs is already showing up through the changing U.S. power mix: EIA’s December 2017 Monthly Energy Review reported renewables replaced coal and gas in 2017.
Total U.S. electricity generation fell 2.6% and total electric use declined 3% in 2017 compared to 2016, while coal and nuclear generation each declined 1.5% while natural gas generation fell 11% By comparison, utility-scale solar generation rose 51% and wind generation rose 11% in 2017 compared to 2016.
See the trend?
Renewable Energy Costs Forecast To Keep Falling While Fossil Fuel Costs Hold Steady
Unfortunately for fossil fuel advocates, renewable energy is expected to keep getting cheaper and adding more capacity while coal, nuclear, and natural gas costs are forecast to remain stagnant and lose ground in the overall power mix.
The National Renewable Energy Laboratory’s (NREL) Annual Technology Baseline 2017 considers recently installed and anticipated near-term projects to forecast onshore wind’s most likely mid-range LCOE will fall from $39/MWh in 2020 to $28/MWh in 2050. Similarly, NREL forecasts utility-scale solar’s most likely mid-range LCOE will decline from $51/MWh in 2020 to $37/MWh in 2050.
By comparison, NREL forecasts the LCOE of fossil fuel generation will hold steady or even increase. ATB 2017 predicts the most likely mid-range LCOE for natural gas combined-cycle plants will rise from $43/MWh in 2020 to $51/MWh in 2050, coal’s most likely mid-range LCOE will hold steady from $71/MWh in 2020 $68/MWh in 2050, and nuclear’s most likely mid-range LCOE will stagnate between $79/MWh in 2020 to $78/MWh in 2050.
As a result, installed U.S. renewable energy generation could double between now and 2020 , according to the Federal Energy Regulatory Commission’s (FERC) most recent Energy Infrastructure Update. 116 GW of proposed utility-scale solar and wind net additions could come online by December 2020, roughly twice the current total installed generation capacity of 115.5 GW. Wind would add 72.5 GW (with only 68 MW of retirements) while utility-scale solar would add 43.5 GW new capacity (with just 2 MW of retirements).
Meanwhile, coal could see an 18.7 GW net decline (6.6% of current capacity) and nuclear could see 2.3 GW less generation (2.2% of current capacity). Natural gas would keep pace with renewables, with 92.5 GW potential capacity additions and 10.8 GW in potential retirements, for a net capacity gain of 81.7 GW.
When other renewables like hydropower and geothermal are added in, renewable energy could make up 26.5% of total U.S. generation capacity in 2020, up from 19.9% today – with solar and wind composing 16.7% of total capacity. FERC does not count distributed solar (i.e. rooftop solar) generation in this tally, meaning solar’s total generation could be much higher.
Even the Trump Administration’s newly imposed 30% import tariff on solar panels won’t materially slow this transition. According to GTM Research, the tariffs will only raise solar prices between 10-12 cents per watt, roughly a 10% increase. Since panels are less than a third of utility-scale solar installation costs and the tariff declines over time, GTM Research predicts the U.S. market could slow around 11% through 2022. One Chinese solar company has even predicted U.S. solar module prices would still be lower at the end of 2018 than in 2017.
Three Ways To Tap The Cheapest Generation Options
U.S. grid operators are already integrating higher wind and solar energy penetrations without risking reliability, but fully capitalizing on cheaper renewable energy relies on regulators and utilities collaborating on three important policy actions.
First, ensure wholesale market design properly values grid flexibility and supports the renewables transition by accurately valuing distributed generation. Second, expand strategies to help utilities retire unprofitable older generation while dedicating funds to retrain workers and assist communities affected by closures. Third, align the financial incentives of utilities with the outcomes consumers want, to deliver value through performance-based regulation.
By focusing on policies that work with changing U.S. energy economics, utilities can improve their bottom line and avoid risky investments, while regulators reduce consumer costs and accelerate the clean energy transition.
By Silvio Marcacci, Communications Director at Energy Innovation, where he leads all public relations and communications efforts.