Offshore wind and battery cost reduction ‘threatens coal and gas’

  Offshore wind and batteries, two technologies that were immature and expensive only a few years ago, are now at the centre of the unfolding low-carbon energy transition and have seen spectacular gains in cost-competitiveness in the last year.

The latest analysis by research company BloombergNEF (BNEF) shows the benchmark levelised cost of electricity (LCOE) for lithium-ion batteries has fallen 35% to US$187/megawatt hour (MWh) since H1 2018. Meanwhile, the benchmark LCOE for offshore wind has fallen by 24%.

Onshore wind and photovoltaic solar have also become less expensive, their respective benchmark LCOE reaching US$50 and US$57/MWh for projects starting construction in early 2019, down 10% and 18% on the equivalent figures of a year ago.

BNEF head of economics Elena Giannakopoulou said, “Looking back over this decade, there have been staggering improvements in the cost-competitiveness of these low-carbon options, thanks to technology innovation, economies of scale, stiff price competition and manufacturing experience.

“Our analysis shows that the LCOE per megawatt-hour for onshore wind, solar PV and offshore wind have fallen by 49%, 84% and 56% respectively since 2010. The LCOE for lithium-ion battery storage has dropped by 76% since 2012, based on recent project costs and historical battery pack prices.”

The most striking finding in this LCOE update for H1 2019, is on the cost improvements in lithium-ion batteries. This is opening up new opportunities for them to balance a renewables-heavy generation mix.

“Batteries co-located with solar or wind projects are starting to compete in many markets and without subsidy, with coal- and gas-fired generation to provide dispatchable power that can be delivered whenever the grid needs it, as opposed to only when the wind is blowing, or the sun is shining,” BNEF said.

Electricity demand is subject to pronounced peaks and lows inter-day. Meeting the peaks has previously been the preserve of technologies such as open-cycle gas turbines and gas reciprocating engines, but these are now facing competition from batteries with anything from one to four hours of energy storage, said BNEF.

BNEF energy economics analyst Tifenn Brandily said, “Solar PV and onshore wind have won the race to be the cheapest sources of new bulk generation in most countries, but the encroachment of clean technologies is now going well beyond that, threatening the balancing role that gas-fired plant operators, in particular, have been hoping to play.”

In the past, offshore wind was sometimes seen as a relatively expensive generation option compared to onshore wind or solar PV. However, auction programmes for new capacity, combined with much larger turbines, have produced sharp reductions in capital costs, taking BNEF’s global benchmark for this technology below US$100/MWh, compared to more than US$220 just five years ago.

Ms Giannakopoulou said, “The low prices promised by offshore wind tenders throughout Europe are now materialising, with several high-profile projects reaching financial close in recent months. Its cost decline in the last six months is the sharpest we have seen for any technology.”

Although the LCOE of solar PV has fallen 18% in the last year, the great majority of that decline happened in Q3 2018, when a shift in Chinese policy caused a huge global supply glut of modules, rather than over the most recent months.

BNEF’s LCOE analysis is based on information on projects starting construction and proprietary pricing information from suppliers.

LCOE measures the all-in expense of producing a MWh of electricity from a new project, taking into account the costs of development, construction and equipment, financing, feedstock, operation and maintenance.

Source: Owjonline