THE ENERGY INDUSTRY TIMES - MARCH 2018
Industry Perspective 13
Towards the tipping point
If there were doubts that renewable
energy sources can compete
with oil, natural gas and coal in
power generation, developments in
the past two years should have dispelled
them. According to the International
Energy Agency (IEA), 2016
was a record year for renewable energy
projects, which provided twothirds
of new global power capacity.
This continuing growth of solar
and wind capacity in many parts of
the world, and the increasing incidence
of projects involving low or
no subsidies, have led some observers
to proclaim the arrival of a ‘tipping
point’ for renewables.
But basing this sort of assertion on
individual projects is a risky move.
After all, every project has its own
circumstances and economics, and
these can differ – sometimes considerably
– even within the same country.
Nonetheless, tipping-point predictions
do provide an indicator of
the progress made to date and what
is still required to reach the point
where renewables overtake fossil fuels
in each country’s energy balance.
This 2018 edition of the Lloyd’s
Register Technology Radar provides
an industry perspective on the challenges
that need to be overcome for
renewables to become the primary
form of energy consumed in countries.
The analysis, conducted by
Longitude in November and December
2017, is based on a Lloyd’s Register
survey of 792 executives working
in the renewable energy sector.
As a group, executives are cautious
about expectations of when renewables
will overtake fossil fuels but at
the same time are optimistic that
technology innovation in different
fields will have a sizeable impact in
the next five years on the performance
of renewable energy generation,
transmission and storage. They
also note that it is important not to
underestimate the cumulative impact
of a series of less dramatic process
improvements – especially those
powered by digital technologies.
The survey returned several key
findings. The first is that the tipping
point is still in the future. In our 2017
study, a majority of renewable sector
executives believed that parity was
being reached. This year we asked
them to predict where it would be
reached first and when. Despite recent
advances, many argue grid parity
for major renewable energy sources
is still several years away for most
countries. The industry expects parity
for solar to be achieved earliest in
China (2022/23), and for wind earliest
in Germany (2024).
Despite subsidies and technology
advances, high costs remain a barrier
to reaching parity and to faster renewables
growth. A majority of
survey respondents, 62 per cent, say
that high costs remain the primary
argument against pursuing renewables
in their country.
Another major inhibitor to the
growth of renewables, and to their
greater attractiveness to utilities, is a
lack of storage at an affordable price.
Excluding cost, the most frequently
cited obstacle by survey respondents
to the growth of renewables in their
country’s energy mix is the slow development
of storage technologies.
These obstacles mean that even if
grid parity comes soon, a decisive
shift in the energy balance towards
renewables will take longer. Taken
together, renewable sources are expected
to surpass fossil fuels in countries’
energy mixes first in Europe
and North America (by 2025), in the
Middle East by 2028, and in Asia Pacific
and Africa in 2033 or later.
The Technology Radar also finds
that achievement of grid parity is not
by itself enough in most countries to
tilt the energy balance decisively in
renewables’ favour. Issues with grid
connection, transmission and storage
often combine to limit the impact of
individual projects.
Recognising that the worldwide
march of renewable energy is slower
than popularly assumed should not,
however, lessen appreciation of its
progress, or of the role that technology
innovation has played in propelling
it forward.
Technology advances can indeed
change the equation. Continued technology
innovation could accelerate
progress towards achieving grid parity.
Most of the attention is on advances
in solar and storage technologies
that could have a big impact on
performance, although these may
take time before having the desired
impact on cost.
A series of improvements in solarpanel
design, for example, have
made considerable contributions in
recent years to the cost-competitiveness
of solar PV. And expansion of
electrochemical battery capacity – in
both grid and residential systems –
has also helped solar PV’s growth. In
offshore wind, advances in materials
such as composites have increased
the efficiency of turbine blades,
which has in turn helped to improve
wind’s economics.
In the next five years, industry experts
expect innovation to predominantly
take the form of incremental
improvements.
In wind energy, for example, boosts
to scale and optimised processes will
be more influential in improving performance
and cost-efficiency than
breakthrough technologies. Larger
offshore turbines and rotors, for example,
and streamlined installation
and maintenance practices (with the
help of analytics) are expected to improve
wind farm economics.
In solar power, too, it is improvements
in existing technologies rather
than new breakthroughs that will
have the greatest impact on performance
in the short and medium
terms. In the longer term, perovskite
cell technology offers the opportunity
to move away entirely from silicon
in the production of PV cells,
which promises greater efficiency.
Notably, digitalisation is seen as a
key driver for performance improvement
in renewable energy generation
and transmission. For example, companies
are looking to use predictive
analytics, demand management and
even machine learning to improve
the operational performance and economics
of energy transmission.
Our 2017 study identified blockchain,
the distributed ledger technology
that underpins cryptocurrencies
such as bitcoin, as a potential disruptor
of energy transmission and distribution.
This latest survey finds respondents
expecting the blockchain
impact on transmission to be felt
within the next five years.
The digitised and decentralised nature
of blockchain makes it a suitable
technology for use within small scale
energy systems. Among blockchain’s
potential applications is in enabling
microgrids through the regulation of
peer-to-peer consumer transactions.
David Eyton of BP, now a major
investor in the renewables market
following its recent $200 million investment
in Lightsource, Europe’s
largest solar development company,
sums up the general industry feeling
that “digital is incredibly important”
noting that, for this reason, BP is currently
investing heavily in digital
technologies such as blockchain. Eyton
goes on to raise the possibility
that the “monstrously inefficient”
current energy systems could be improved
by the “enormous and positive
impact” of technologies such as
blockchain.
We are heartened by not only the
optimistic outlook but also the measured
and realistic approach that is
displayed throughout the results and
insights in the research.
Traditionally, the elephant in the
room in discussions of renewable energy
has been policy change. However,
industry executives believe the
improving economics of solar and
wind is reducing the scope for policy
changes to obstruct renewables
growth.
Recent evidence may be found in
the US. Renewable energy capacity
there continues to grow in spite of
the current administration’s retreat
from COP21 and domestic commitments
to combatting climate change.
Indeed, in large parts of the world
policy appears to be diminishing as a
decisive driver or inhibitor of renewable
energy growth.
The sector’s continuing investments
in technology innovation help
to explain this. In Europe, North
America and parts of Asia, it is continued
technology innovation that is
doing the most to build the case for
renewable energy – a view that is
supported by most of our survey
respondents.
This is not entirely the case in developing
countries, where government
support for renewables is often
weak. In the survey, for example,
many more Middle East respondents
than those from other regions cite
government policy as a renewables
growth inhibitor in their countries.
Government policy, of course, affects
energy markets in many different
ways, not least through decisions
on subsidies for different energy
sources. In most countries, few investors
will look at a major renewable
energy project without considering
the financial support that the
government may or may not be providing
for it.
This study makes clear that there is
some distance to go before the economic
case for renewable energy becomes
unassailable. The costs of
technology innovation, for example,
remain high, both in the development
phase, as in the case of energy storage,
and the asset construction phase,
particularly when it comes to deployment.
In some cases, the costs of innovation
can act to limit operational
cost reduction. At the same time,
digital technologies should make a
significant contribution to reducing
operational costs for renewable energy
developers as well as for utilities.
As technology innovation brings
grid parity closer for renewable energy
sources, then, it is also bringing
closer the day when renewable projects
can be judged purely on their
commercial merits. When that happens
regularly, the tipping point will
almost surely have been passed.
Karl Ove Ingebrigsten is Director of
Lloyd’s Register’s Low Carbon business
and author of the ‘Technology
Radar 2018’ report.
A new report
published by Lloyd’s
Register looks
at the degree to
which renewable
energy has gained
traction throughout
the world and what
needs to happen to
accelerate it. The
research illuminates
the outlook for
renewables and
highlights the
technologies that are
expected to deliver
the greatest impact.
Karl Ove
Ingebrigsten
In which country do you
think the following renewable
energy sources
will reach grid parity with
fossil fuels first, and in which
year?*
Karl Ove Ingebrigsten: the tipping point is still in the future