Wind and Solar Will Be the Cheapest Way to Generate Power by 2040

Although the prices of coal and gas will continue to scrape bottom over the next couple of decades, the cheapest form of power generation will soon be renewable energy.  That’s the conclusion of the New Energy Outlook 2016 from Bloomberg New Energy Finance, which was released Monday.

The cost of generating electricity “for onshore wind will fall 41 percent by 2040, and solar photovoltaics by 60 percent, making these two technologies the cheapest ways of producing electricity in many countries during the 2020s and in most of the world in the 2030s,” the report concludes.  The installed price of residential rooftop solar power today is about $3.00 per watt, without government subsidies.  That means that under the Bloomberg scenario, the price would be $1.20 per watt.  (For utility-scale solar it will fall to about 53 cents per watt.)

That is cheap, but unfortunately it’s not enough to achieve the level of solar penetration (30 percent or more) needed to really make a dent in global greenhouse gas emissions and limit global warming to less than 2 °C.

That’s because of the “value deflation” effect:  as more solar power gets added to the grid, the value of each additional unit of solar capacity to producers goes down.  That means that the price of solar has to fall substantially below the levels outlined in the Bloomberg report for solar to become a major source of power generation—to around 25 cents a watt, according to a paper published in Nature Energy in April.  “Even with rapid technological advancement, 25 cents per watt may be out of reach by midcentury,” wrote the paper’s authors, Varun Sivaram of the Council on Foreign Relations and Shayle Kann of GTM Research.

Investments in renewable energy will total $7.8 trillion between now and 2040, Bloomberg forecasts, dwarfing the $2.1 trillion that will go into new fossil fuel plants.  Again, though, that’s not enough:  “On top of the $7.8 trillion, the world would need to invest another $5.3 trillion in zero-carbon power by 2040 to prevent carbon dioxide in the atmosphere rising above the Intergovernmental Panel on Climate Change’s ‘safe’ limit of 450 parts per million.”

The good news?  Bloomberg’s forecast “does not assume any further policy measures post-2020 to speed up decarbonization.”  In other words, we’ve still got time to put a price on carbon.  But not much time.

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