By - Jim Vess

Wood Mackenzie puts the cost of transition to all renewable energy at $4.5 trillion

Energize Weekly, July 3, 2019

The cost of transforming the U.S. electric grid to totally renewable energy in the next 10 to 20 years would be $4.5 trillion given current technology, according to a study by energy-and-industry consultant Wood Mackenzie.

At a time of competing climate plans among Democratic presidential candidates and the Green New Deal being promoted by Congressional Democrats, the Wood Mackenzie study is the first industry-based assessment.

The Green New Deal, which seeks to replace all fossil fuel-based generation with clean energy by 2030, as well as make major investments in transportation infrastructure, would cost $10 trillion, according to its sponsors. Republican critics charge it will cost $93 trillion.

Among the Democratic presidential candidates, former Vice President Joe Biden has proposed a $1.7 trillion climate plan, and Washington Gov. Jay Inslee, who has made climate change the centerpiece of his campaign, is proposing public spending of $300 billion a year, which would leverage to $600 billion annually in private investment for a total of $9 trillion over 10 years.

Aggressive climate policies with a 2030 deadline would require more capacity to be built every year for the next 11 years than was built over the last two decades, the report said. The annual financial commitment would be as much as the country spends on defense.

While the Wood Mackenzie estimate is lower than the political proposals, the consultant noted that the price tag is almost as much at the U.S. has spent on the war on terror since 2001 and equal to $2,000 a year for each American household under a 20-year scenario.

The price tag may, however, not be the biggest hurdle as the move to total clean energy will have a disruptive effect on the economy, the report said.

“Eliminating fossil fuels represents a transformative investment opportunity for stakeholders of the new energy economy,” according to Wood Mackenzie. “But for legacy participants in the energy industry, it also creates an existential crisis. Companies – and in some cases, whole industries – must evolve or perish.”

There is no large-scale power system in the world operating with more than 30 percent wind and photovoltaic (PV) solar, the report said. Systems appear to easily reach 25 percent without operating issues.

Germany’s annual average share for wind and solar is 29.2 percent and for Spain, it is 24 percent. In 2019, wind and solar will make up about 13 percent of U.S. generation, according to the federal Energy Information Administration.

The California Independent System Operator (CAISO), however, is already at 19.5 percent, and its experience points to some of the challenges in pursuing a 100 percent goal.

To deal with the intermittent nature of wind and solar, either extra generating capacity or storage has to be added. But backup capacity can create its own issues. Even at 20 percent renewables, California generates so much solar electricity production in the spring that installations have to be curtailed, taken offline. This adds to the cost of operations.

To manage wind and solar, 900 gigawatts (GW) of storage would have to be built. Worldwide, there are only 5.5 GW of storage in operation or under construction. “The inadequacy of the energy storage supply chain is apparent and is compounded by technology gaps,” the report said.

While the cost of wind and solar technologies has been dropping sharply since 2010 – utility-scale solar PV costs are down 71 percent and onshore wind is down 73 percent – customer rates are up 28 percent.

The difference, in part, includes all the other costs attendant in the transit to clean power. “In essence, the total price of transition includes everything needed to produce and deliver clean energy to consumers,” the report said.

Among those costs are building and operating generation assets, making capacity payments, investing in transmission and distribution infrastructure, new technologies to help consumers manage their energy demand and digitizing the grid.

Wood Mackenzie estimates that to reach 100 percent renewable energy would require a “massive investment” to build 1,600 GW of new wind and solar generation. The U.S. power grid currently has 1,060 GW of nameplate capacity.

The cost of new generation is estimated at $1.5 trillion, according to the report.

In regard to transmission, the U.S. has about 200,000 miles of high voltage transmission (HVT). The report said that if reaching 100 percent renewable electricity requires a doubling of installed generating capacity, it could also mean a doubling of HVT requirements. “Assuming 200,000 miles of new HVT at an average price of US$3.5 million/mile adds US$700 billion,” the report said.

Cost inflation, given supply chain requirements and stranded assets of coal-fired and natural gas-fired plants, would add additional costs to the transition, the report said.

To reduce the cost of the transition, among the suggestions Wood Mackenzie offered, was to extend the timeline to 2040 or 2050 to allow new technologies to be commercialized, include zero-carbon technologies such as nuclear generation and allow some natural-gas generation into the mix.

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