Technology

Why did renewables become so cheap so fast? And what can we do to use this global opportunity for green growth?

  • In a study published in the Proceedings of the National Academy of Sciences, Jos Lelieveld et al. (2019) estimated that 5.6 million people died from anthropogenically caused air pollution. Of these 5.6 million, 3.6 million were attributed to fossil fuels. 

    Lelieveld, J., Klingmüller, K., Pozzer, A., Burnett, R. T., Haines, A., & Ramanathan, V. (2019). Effects of fossil fuel and total anthropogenic emission removal on public health and climate. Proceedings of the National Academy of Sciences, 116(15), 7192-7197

    The death toll of the three counts of violence for 2017 according to the IHME is 561,511.
    • Homicides: 405,346 deaths
    • War battles: 129,720 deaths
    • Terrorism: 26,445 deaths.

  • The other two big energy sectors are heat and transport; in the coming years it is very likely that the share of electric energy will increase, because a larger share of transport will be electrified.

    The IEA reports that electricity’s share in total final energy consumption was 19% in 2018 and expects it to increase to  24% in 2040.

  • In 2016 (the latest sectoral breakdown available) global greenhouse gas emissions were 49.36 billion tonnes CO2eq. Electricity and heat generation was responsible for 15.01 billion tonnes CO2eq.

    Electricity and heat generation therefore accounted for [49.36 / 15.01 * 100 = 30%] of global emissions. This data is sourced from Climate Watch and the World Resources Institute.

  • The data source is Lazard’s Levelized Cost of Energy 2019 – the big advantage of this source is that it includes the cost of electricity from a wide range of sources.

  • “Enhanced levelised cost” is an approach that aims to adjust for this, but its measurement is still in its early stages. Simon Evans discusses ‘enhanced levelised costs’ for different electricity sources in the UK.

  • This goal – the alternative energy source generating power at a levelized cost of energy (LCOE) that is equal (or lower) than the currently dominating source of energy – is referred to as ‘grid parity’.

  • It is very hard to find anything else that declines in price just as fast as electricity from renewable sources.

    The report by IRENA finds that for the 531 individual items that are used to compile the UK’s Consumer Price Index (CPI), only five items have declined more rapidly: strawberries, fruit smoothies, internet computer games, household cleaner and underground/metro fares outside London. But of course most people spend more money on electricity than on strawberries.

    IRENA (2020) – Renewable Power Generation Costs in 2019, International Renewable Energy Agency

  • IRENA (2020) – Renewable Power Generation Costs in 2019, International Renewable Energy Agency

  • In the following section we will look into their cost structures in detail.

  • J. Perlin (1999) – From space to earth: the story of solar electricity. aatech publications, Ann Arbor, MI (1999) via Doyne Farmer and Fracois Lafond (2016) – How predictable is technological progress? Research Policy. Volume 45, Issue 3, April 2016, Pages 647-665. https://doi.org/10.1016/j.respol.2015.11.001
    $256 in 1956 adjusted for prices – using the US GDP deflator – equals $1865 in 2019 US-$ according to (https://www.multpl.com/gdp-deflator

  • Ben Zientara (2020) – How much electricity does a solar panel produce? Updated version from 4/2/2020

  • This is the price per watt multiplied by the output of today’s typical solar panel: 320W * 1865$/W= $596,800.

  • The History of Solar. US Department of Energy.

  • How much electricity can be generated from 0.3 megawatts of electricity?

    As a back-of-the-envelope calculation, I used the oldest data for Germany that I could find, which relates to the 1990s, and took an average to average over better and worse years. In the 1990s Germany had 48.5 MW of solar capacity and generated 23,750 MWh of electricity. This means that in these circumstances and with this technology (surely much better than the technology in 1976) they generated 145,040 kWh per solar PV capacity of 0.3 MW.

    The electricity demand of a person in Germany is 7,333kWh per year so that 0.3MW could provide electricity for 20 people (145,040kWh/7,333kWh=19.78).

  • Kavlak, Goksin and McNerney, James and Trancik, Jessika E. (2017) – Evaluating the Causes of Cost Reduction in Photovoltaic Modules (August 9, 2017). In Energy Policy, 123:700-710, 2018, http://dx.doi.org/10.2139/ssrn.2891516

  • As one would expect, the exact learning rate differs slightly across studies, mostly due to differences in the chosen data source, the chosen proxy measure for ‘experience’, the geographic location or the considered time-span.

    To give the fairest estimate and avoid relying on one unusual datapoint I am therefore reporting an average across several experience curve studies for PV that was conducted by de La Tour et al. 2013. The authors find an average learning rate over many studies of 20.2% (see Table 1 of their publication).

    de La Tour, A., Glachant, M. & Ménière, Y. (2013) – Predicting the costs of photovoltaic solar modules in 2020 using experience curve models. In Energy 62, 341–348.

    The learning rate implied by the data that I’m presenting here is very similar (22.5%).

  • Since it is sometimes wrongly claimed: It is not the case that a constant learning rate implies that the cost of a technology eventually would need to decline to 0. 

    This misunderstanding does not consider the driving force appropriately. It is the doubling of the cumulative number of units produced that drives the cost decline. Achieving a doubling of that becomes harder and harder as total production increases. Once the cumulative production is already very high, each doubling of cumulative capacity will take longer and longer. Eventually demand will level off such that the price decline slows down and would stop when the cumulative production of the technology satisfies demand.

  • Theodore Paul Wright (1936) – Factors affecting the cost of airplanes. J. Aeronaut. Sci., 3 (4) (1936), pp. 122-128

  • Plausibly it isn’t just the passing of time that drives the progress in computer chips, but there too it is the learning that comes with continuously expanding the production of these chips. Lafond et al (2018) explain that the two laws produce the same forecasts when cumulative production grows exponentially, which is the case when production grows exponentially. More precisely, if production grows exponentially with some noise/fluctuations, then cumulative production grows exponentially with very little noise/fluctuations. As a result, the log of cumulative production is a linear trend and therefore predicting cost by the linear trend of time or the linear trend of log cumulative production give the same results. 

    Fracois Lafond, Aimee G. Bailey, Jan D. Bakker, Dylan Rebois, Rubina Zadourian, Patrick McSharry, and J. Doyne Farmer (2018) – How well do experience curves predict technological progress? A method for making distributional forecasts In Technological Forecasting and Social Change  128, pp 104-117, 2018. arXiv, Publisher, Data, Code.

    See also Nagy B, Farmer JD, Bui QM, Trancik JE (2013) Statistical Basis for Predicting Technological Progress. PLoS ONE 8(2): e52669. https://doi.org/10.1371/journal.pone.0052669 

    Wright’s law for solar PV modules has also been given its own name; some call it Swanson’s Law (Wiki).

  • Nagy B, Farmer JD, Bui QM, Trancik JE (2013) Statistical Basis for Predicting Technological Progress. PLoS ONE 8(2): e52669. https://doi.org/10.1371/journal.pone.0052669
    Many more references can be found in Doyne Farmer and Fracois Lafond (2016) – How predictable is technological progress? Research Policy. Volume 45, Issue 3, April 2016, Pages 647-665. https://doi.org/10.1016/j.respol.2015.11.001
    The price of Ford’s Model T followed Wright’s law: each doubling of cumulative production led to the same relative decline in prices. What’s fascinating is that this decline hasn’t stopped until today. An 8hp car, as the Model T, costs what you’d expect: See Sam Korus (2019) – Wright’s Law Predicted 109 Years of Auto Production Costs, and Now Tesla’s

  • Lafond, Francois and Greenwald, Diana Seave and Farmer, J. Doyne, Can Stimulating Demand Drive Costs Down? World War II as a Natural Experiment (June 1, 2020). http://dx.doi.org/10.2139/ssrn.3519913

  • The first reference to Watson saying this is in an article from Der Spiegel from 26th May 1965 – Sieg der Mikrosekunde

  • Doyne Farmer and Fracois Lafond (2016) – How predictable is technological progress? Research Policy. Volume 45, Issue 3, April 2016, Pages 647-665. https://doi.org/10.1016/j.respol.2015.11.001
    See also: de La Tour, A., Glachant, M. & Ménière, Y. (2013) – Predicting the costs of photovoltaic solar modules in 2020 using experience curve models. In Energy 62, 341–348.

  • IRENA 2020 for all data on renewable sources; Lazard for the price of electricity from nuclear and coal – IAEA for nuclear capacity and the Global Energy Monitor for coal capacity.

  • For fossil fuels and nuclear we show installed capacity at each point in time (because we are not aware of any data on the cumulatively built capacity for these energy sources). I am however not expecting a large difference between installed and cumulatively built capacity – especially over a 10-year time span and for power sources that have been scaled up largely before 2009.

  • The UK government expects offshore wind to become cheaper than onshore wind by the mid-2030s. Department for Business, Energy & Industrial Strategy (2020) – BEIS electricity generation cost report. Published 24 August 2020.
    See also the discussion of this report: Simon Evans (2020) – Wind and solar are 30-50% cheaper than thought,admits UK government. In Carbon Brief.

  • The price of coal plants over time was studied in McNerney et al (2011) and the authors find that after a decline of construction costs from 1902 until around 1970, the price then increased for two decades from 1970 until 1990. They attribute this cost increase to increased restrictions on the tolerable pollution (air pollution has fallen rapidly in industrialized countries since 1970). From around 1990 onwards the price of coal plants remained largely unchanged.
    J. McNerney, J.D. Farmer, J.E. Trancik (2011) – Historical costs of coal-fired electricity and implications for the future Energy Policy, 39 (6) (2011), pp. 3042-3054 https://doi.org/10.1016/j.enpol.2011.01.037

    The price of coal itself has fluctuated over the last 150 years, but without a clear long run trend as the same authors show. Falling transportation costs have made coal cheaper for power plants, but more recently the price of coal increased and overall the price of coal has not declined over the long run.

  • Dawn Santoianni (2015) – Setting the Benchmark: The World’s Most Efficient Coal-Fired Power Plants in Worldcoal

  • Doyne Farmer and Francois Lafond (2016) – How predictable is technological progress? Research Policy. Volume 45, Issue 3, April 2016, Pages 647-665. doi.org/10.1016/j.respol.2015.11.001

  • J. McNerney, J.D. Farmer, J.E. Trancik (2011) – Historical costs of coal-fired electricity and implications for the future Energy Policy, 39 (6) (2011), pp. 3042-3054 https://doi.org/10.1016/j.enpol.2011.01.037

  • There are arguments for and against gas as a source of electricity. In comparison with coal, the world’s dominating source of electricity, gas is both safer and cleaner, as we see in the first chart: the death rate from air pollution and accidents is 9-times lower and the greenhouse gas emissions are 40% lower per unit of produced energy. A third important consideration is that while power from gas peakers is expensive they can react quickly and provide electricity at peak times or when the output from other sources, especially renewables, drops.

    On the other hand it is of course the case that gas is much more deadly and emits much more carbon than nuclear and renewables.

    Good carbon pricing could strike a balance where the low-carbon alternatives can continue to grow and gas can take over from coal. At a higher carbon price, gas combined with CCS – carbon capture and storage – can become cost-effective sooner. The UK has implemented a carbon price and the government there expects that from 2025 onwards the levelised cost for gas-with-CCS to be cheaper than unabated gas. See: Department for Business, Energy & Industrial Strategy (2020) – BEIS electricity generation cost report. Published 24 August 2020.
    See also the discussion of this report: Simon Evans (2020) – Wind and solar are 30-50% cheaper than thought,admits UK government. In Carbon Brief.

  • In the visualization I am not able to show gas electricity. This is because the price between gas peaker and combined cycles differs significantly, and I am not aware of any global data on the capacity of each of these sources. If you know of data that would allow the addition of gas to the visualization please get in touch with me. Thank you.

  • Edward S.Rubin, Inês M.L.Azevedo, Paulina Jaramillo, Sonia Yeh (2015) – A review of learning rates for electricity supply technologies. In Energy Policy. Volume 86, November 2015, Pages 198-218. https://doi.org/10.1016/j.enpol.2015.06.011

  • Edward S.Rubin, Inês M.L.Azevedo, Paulina Jaramillo, Sonia Yeh (2015) – A review of learning rates for electricity supply technologies. In Energy Policy. Volume 86, November 2015, Pages 198-218. https://doi.org/10.1016/j.enpol.2015.06.011

  • Michael Fitzpatrick (2017) – Nuclear power is set to get a lot safer (and cheaper) – here’s why https://theconversation.com/nuclear-power-is-set-to-get-a-lot-safer-and-cheaper-heres-why-62207

  • See Michel Berthélemy and Lina Escobar Rangel (2015) – Nuclear reactors’ construction costs: The role of lead-time, standardization and technological progress. In Energy Policy Volume 82, July 2015, Pages 118-130. https://doi.org/10.1016/j.enpol.2015.03.015

  • See Michel Berthélemy and Lina Escobar Rangel (2015) – Nuclear reactors’ construction costs: The role of lead-time, standardization and technological progress. In Energy Policy Volume 82, July 2015, Pages 118-130. https://doi.org/10.1016/j.enpol.2015.03.015

  • A rough back of the envelope calculation by Michael Barnard makes this clear “There is about 650 gigawatts (GW) of capacity of wind energy right now, as one example. The average wind turbine is about 2 megawatts (MW) in capacity globally, as new ones are almost always bigger and often much bigger. That means that there are about 325,000 wind turbines that have been built, and it means that there are almost a million wind turbine blades. Similarly, there’s about about 584 GW of solar globally. The average solar panel is about 200 Watts in capacity, so that’s about 3 billion solar panels installed already.”

  • David J. C. MacKay (2008) – Sustainable Energy – without the hot air. Online at WithoutHotAir.com

  • Recent relevant coverage includes Compact Nuclear Fusion Reactor Is ‘Very Likely to Work,’ Studies Suggest (in the New York Times) and somewhat dated, but still relevant and fascinating A Star in a Bottle in the New Yorker.

  • Schmidt, O., Hawkes, A., Gambhir, A. et al. The future cost of electrical energy storage based on experience rates. Nat Energy 2, 17110 (2017). https://doi.org/10.1038/nenergy.2017.110
    An updated dataset from 2018 by the authors is available on FigShare here
    Annual updates can be found via Bloomberg NEF, for example here..

  • Cary Funk and Meg Hefferon (2019) – U.S. Public Views on Climate and Energy. Pew Research Center.
    On other countries see Pew Research (2020) – International Science Survey 2019-2020. September 29, 2020 Release

  • Two papers to read on this point:
    Rupert Way, François Lafond, Fabrizio Lillo, Valentyn Panchenko, J. Doyne Farmer (2019) – Wright meets Markowitz: How standard portfolio theory changes when assets are technologies following experience curves. In Journal of Economic Dynamics and Control. Volume 101, April 2019, Pages 211-238. https://doi.org/10.1016/j.jedc.2018.10.006

    Farmer, J.D., Hepburn, C., Ives, M.C., Hale, T., Wetzer, T., Mealy, P., Rafaty, R., Srivastav, S. & Way, R. (2019). ‘Sensitive intervention points in the post-carbon transition’. Science, 364(6436), pp. 132-134.

  • See the IEA World Energy Outlook 2020 section on electricity.

  • Carbon pricing is a policy that would make those who actually cause emissions pay for them (the richest people in the world that enjoy the best living conditions in human history), but most governments fail to implement carbon prices, and where they exist they are often too low (which has the consequence that the poorest people on the planet are ‘paying’ most for carbon emissions, since it is them who are suffering the severest consequences).

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