The cost of electricity from wind and solar is dropping much faster than predictions from only a few years ago, with the two energy sources forecast to deliver 34 percent of global electricity generation (and 48 percent of installed capacity) by 2040, up from just five percent of generation today.
This is one of the key conclusions drawn from a modelled forecast by Bloomberg New Energy Finance out this week. The business intelligence firm annually produces its New Energy Outlook report, a market projection that is produced independently of alternative energy firms and the fossil fuel sector.
According to BNEF, the cost of electricity from solar photovoltaic (PV) is to drop by two thirds by 2040, while the cost of electricity from offshore wind will decline 71 percent—driven by bigger turbines and more extensive wind farms—and from onshore wind by 47 percent due to efficiency gains.
In sun-blessed regions, distributed, consumer-driven photovoltaic will begin to make up a significant part of the energy mix. By 2040 rooftop PV is projected to make up 24 percent of generation in Australia and 20 percent in Brazil. Regions that are not so sunny won’t enjoy such rates of penetration. Germany for example will see solar only hit 15 percent of generation, and the United States five percent.
Wind and solar PV will be cheaper than existing coal plants by 2030 in some countries, meaning that only 18 percent of coal plants currently on the drawing board will actually be built, and coal-fired generation will peak in 2026
By 2023, onshore wind and solar will begin to undercut new-build gas plants, and by 2028 they will be cheaper than existing gas plants.
Because wind and solar are variable, they need to be backed up with some form of energy storage and more dependable supply. The forecast thus suggests a huge growth in lithium-ion batteries for energy storage, climbing to a $20 billion global market by 2040. Electric vehicles will also work as energy storage when not being driven, accounting for approximately 13 percent of electricity ‘generation’ in the European Union, and the US.
So there is something of a paradox here. While battery use grows, their economics remains challenging, meaning that only a minority of PV systems are backed up in this way. Instead, natural gas-fired capacity is tipped to increase by 16 percent over this period, less as a replacement for much dirtier coal than to maintain system stability via back-up for variable renewables. Gas also works to replace nuclear power in Europe as a suite of reactors is retired over the next decade.
BFEF’s findings stand in stark contrast to a 2016 forecast by ExxonMobil that predicted wind and solar would not breach four percent by 2040, while hydro, nuclear and biomass would clock in a three percent each. However Bloomberg’s conclusions do echo trends identified by another independent forecaster, the International Energy Agency, which sees natural gas, wind and solar replacing coal in its latest World Energy Outlook report.
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