By - Jim Vess

More than $10 billion to be spent on new generation worldwide—most of it on renewables

Energize Weekly, June 28, 2017

The world’s energy mix is continuing to evolve with wind and solar projected to account for 82 percent of the installed generation capacity by 2040, as the role of coal and even natural gas decline, according to a Bloomberg New Energy Finance (BNEF) forecast.

Installed solar capacity will increase 14-fold and wind capacity fourfold by 2040, according to BNEF’s 2017 New Energy Outlook.

“We anticipate renewable energy reaching 74% penetration in Germany, 38% in the U.S., 55% in China and 49% in India by 2040 as batteries and new sources of flexibility bolster the reach of renewables,” the forecast said.

At the same time, the use of coal-fired power will peak in 2026 and then face a steady decline. Natural gas-fired plants, which have seen a major increase in capacity in the last 15 years, will become an ancillary power source.

“This year’s report suggests that the greening of the world’s electricity system is unstoppable, thanks to rapidly falling costs for solar and wind power, and a growing role for batteries, including those in electric vehicles, in balancing supply and demand,” Seb Henbest, lead author of the energy outlook report, said in a statement.

The outlook is the result of eight months of analysis and modeling by a team of 65 Bloomberg energy analysts. It is a least-cost optimized forecast, so it depends upon the prospect of significant market reform and new price signals to maximize value from new technologies. It assumes that current subsidies expire and that energy policies around the world remain on their current bearing.

Bloomberg projects $10.2 trillion will be invested in new power plants worldwide, with 72 percent of that going to renewables. The lion’s share of that goes to solar, $2.8 trillion, and wind, $3.3 trillion.

These renewable energy investments will be driven by falling prices for wind and solar technologies. The levelized cost for new electricity from solar photovoltaics (PV) is projected to drop 66 percent by 2040, when a dollar would buy 2.3 times as much solar energy as it does today. Onshore wind costs fall 47 percent during the same time span, primarily due to improved turbines and operations.

Rooftop and community solar installations will grow to become a significant source of generation by 2040, the outlook said. Rooftop PV could reach as much as 24 percent of electricity generation in Australia, 20 percent in Brazil, 15 percent in Germany, 12 percent in Japan, and 5 percent each in the U.S. and India.

For the first time, the annual Bloomberg outlook took a look at the impact of electric vehicles and storage batteries—which are seen as a complement to intermittent renewable generation.

“These new sources of flexibility allow for more dynamic balancing of supply and demand and become particularly important in markets where large amounts of variable wind and solar are deployed and conventional assets retire,” the outlook said.

Electric vehicles (EVs) can help balance the grid, absorbing electricity at peak generation periods or when there is low electricity demand. For example, peak wind generation is at night and EVs can charge during that period. The vehicles can also serve as batteries discharging onto the grid at peak demand periods. 

“In Europe and the U.S., EVs account for 13% and 12% respectively of electricity generation by 2040,” the report said. “Charging EVs flexibly, when renewables are generating and wholesale prices are low, will help the system adapt to intermittent solar and wind. The growth of EVs pushes the cost of lithium-ion batteries down 73% by 2030. “

Bloomberg projects the market for lithium-ion batteries to increase ten-fold to $20 billion a year by 2040. Small-scale batteries in households and businesses linked with PV systems will account for 57 percent of the installed capacity worldwide.

The consequences of these trends for fossil fuels is stark. By 2030, Bloomberg sees wind and PV in some countries undercutting existing coal plants on operational costs and generally accelerating the decline of coal generation.

Only 35 percent of planned coal-fired power plants are built. That kill rate would lead to 369 gigawatts of projects being canceled and global demand for thermal coal in 2040 dropping 15 percent from 2016 levels. Coal use will drop 87 percent in Europe and 45 percent in the U.S. by 2040, the report said.

 “Gas is a transition fuel, but not in the way most people think,” the report said. “Gas-fired capacity increases 16% by 2040 but gas plants will increasingly act more as a source of flexible generation needed to meet peaks and provide system stability rather than as a replacement for ‘baseload’ coal. In North America, however, where gas is plentiful and cheap, it plays a more central role, especially in the near term.”

The outlook gives a breakdown on where those $10.2 trillion in investments will be made, with China accounting for 28 percent and India another 18 percent—a total of $4 trillion by 2040.

The Asia Pacific sees almost as much investment as the rest of the world at $4.8 trillion, with a just under a third going to solar, a third to wind, 18 percent to nuclear, and 10 percent to coal and gas.

India will significantly expand its coal fleet in the next five years, adding more than 40 GW of new plants. From 2030, solar begins to sideline coal in India, with the pace of PV additions more than doubling.

Asia hits peak coal capacity in 2024, and peak generation in 2028, as retirements begin to outpace new additions. “By the mid-2020s, cheap wind and PV begin to undercut new coal on a levelized basis throughout the region, trimming average installations to just 9 gigawatts a year. Coal, however, remains the bedrock of the region’s power supply, providing 34% of electricity in 2040 – a larger share than any other fuel,” the report said.

Half of the European electricity supply in 2040 comes from variable renewables, posing challenges for grid and generators, and there is $1.5 trillion in investment in the Americas primarily in renewable generation. In the U.S., power sector coal consumption drops 45 percent as coal plants are retired and replaced by cheaper natural gas and renewables.

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