Global spending on renewable energy is outpacing investment in
electricity from coal, natural gas and nuclear power plants, driven by falling
costs of producing wind and solar power.
More than half of the power-generating capacity added around the world
in recent years has been in renewable sources such as wind and solar, according
to the International Energy Agency.
In 2016, the latest year for which data is available, about $297 billion
was spent on renewables—more than twice the $143 billion spent on new nuclear,
coal, gas and fuel oil power plants, according to the IEA. The Paris-based
organization projects renewables will make up 56% of net generating capacity
added through 2025.
Once supported overwhelmingly by cash-back incentives, tax credits and
other government incentives, wind- and solar-generation costs have fallen
consistently for a decade, making renewable-power investment more competitive.
Renewable costs have fallen so far in the past few years that “wind and
solar now represent the lowest-cost option for generating electricity,” said
Francis O’Sullivan, research director of the Massachusetts Institute of
Technology’s Energy Initiative.
This is beginning to disrupt the business of making electricity and
manufacturing generating equipment. Both General Electric Co. andSiemens AG are
grappling with diminished demand for large gas-burning turbines and have
announced layoffs. Meanwhile, mostly Asian-based manufacturers of solar panels
In many places, opting for renewables “is a purely economic choice,”
said Danielle Merfeld, the chief technology officer of GE’s renewable energy
unit. “In most places, it is cheaper and other technologies have become more
Sustained government support in Europe and other developed economies
spurred the development of renewable energy. But costs have fallen for other
reasons. China invested heavily in a domestic solar-manufacturing industry,
creating a glut of inexpensive solar panels. Innovation helped manufacturers
build longer wind-turbine blades, creating machines able to generate
substantially more power at a lower cost.
Renewable-energy plants also face fewer challenges than traditional
power plants. Nuclear-power plants have been troubled by mostly technical
delays, while plants burning fossil fuels face regulatory uncertainties due to
concerns about climate change. And pension funds, seeking long-term stable
returns, have invested heavily in wind farms and solar parks, allowing
developers to get cheaper financing.
“It is just easier to get renewables built,” said Tony Clark, a former
member of the Federal Energy Regulatory Commission. “There is that much less
opposition to it.”
The sustained investment is reshaping how the world’s homes and
industries are powered. Last year, the percentage of electricity from renewable
sources reached 12.1%, more than double that of a decade earlier, according to
a joint report by the Frankfurt School of Finance & Management and the
United Nations Environmental Program. These figures don’t include electricity
from large hydroelectric dams.
The rise of renewable power generation is raising concerns and sparking
a political backlash in the U.S. The Trump administration is weighing actions
to subsidize the operation of coal and nuclear plants, arguing that these units
are needed for the reliable operation of the power grid.
The proposal, which follows a request for relief by First Energy Corp.,
an Ohio-based owner of coal and nuclear plants, would hurt renewables and
natural gas-fired plants, which have boomed in recent years as the fuel has become
cheaper and more plentiful thanks to fracking. An unusual alliance, including
renewable-energy groups and the oil-and-gas-industry’s American Petroleum
Institute, have challenged whether any government aid is really needed.
In the U.S., more than two decades of government tax credits, some of
which will soon go away, have propelled renewables. About 17% of the country’s
electricity last year came from renewable sources, including wind, solar and
hydroelectric dams, according to federal data. The government said that just
under half of large-scale power generation added was renewable last year.
Last week, Xcel Energy Inc. announced a $2.5 billion plan to
add 1,800 megawatts of new wind and solar generation, plus a substantial amount
of batteries to store the power. The plan, which needs to be approved by state
regulators, would retire 660 megawatts of coal-burning generation and result in
savings for consumers, the Minneapolis-based utility said.
“I think, across the nation, you could get to 40% renewable energy,”
said Xcel Chief Executive Ben Fowke. “Ten years ago, I would have told you 20%
was the max.”
Renewable-energy prices are now competitive with fossil-fuel generation
in many places. In 2017, the global average cost of electricity from onshore
wind was $60 per megawatt hour and $100 for solar, toward the lower end of the
$50 to $170 range for new fossil-fuel facilities in developed nations,
according to the International Renewable Energy Agency.
The combination of falling costs and large pools of available capital is
also spurring renewables growth in developing countries.
In November, Italy’s Enel SpA, a global energy company, won a bid to build
power plants in Chile in an auction open to both renewable and fossil-fuel
generators. Enel will build wind, solar and geothermal facilities and sell
power from the facilities at about $32.50 per megawatt hour, an unsubsidized
rate that is lower than the cost of natural gas or coal to burn in existing
Recent power auctions have suggested that renewable energy prices have
further to fall. Earlier this year, an auction in Saudi Arabia awarded a
contract to build a 300-megawatt solar facility for $17.90 a megawatt hour.
Very low labor costs in the Middle East and India are resulting in
record-breaking low bids for solar.
A Mexican auction last year drew international bids for power at an
unsubsidized price of below $21 per megawatt hour. That was substantially below
the spot market price for electricity, which averaged around $70 per megawatt
hour last year, said Veronica Irastorza, an associate director of economic
consulting firm NERA and a former Mexican undersecretary of energy planning.
“Renewables are going to be able to compete with thermal plants. They
will be incorporated into the system faster than I thought five years ago,” she
In Canada, an auction in Alberta in December awarded four wind contracts
for an average of $37 a megawatt hour, subsidy-free. The Albertan government
planned to award contracts for only 400 megawatts, but bumped it up to 600
megawatts when it saw the prices offered, which were slightly below the average
price for electricity on the province’s grid in 2018.
In India, the push into solar has been driven partly by a desire for
cleaner energy sources, but also because there is more financing available for
solar than for coal, said Rahul Tongia, a fellow at Fellow at Brookings India
in New Delhi.
Renewable output varies, based on when the sun is shining and wind is
blowing, and cannot always be dispatched when needed like a coal or gas plant.
That can pose a challenge to grid operators.
But industry observers say that is now a concern only in certain
markets, such as California, where renewable penetration is at its highest.
“We could see aggressive build rates for several years to come before we
see issues in many markets,” said Tom Heggarty, an analyst with energy
consultant Wood Mackenzie. “Ten, 20 years down the line, it might be a
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