Bloomberg New Energy Finance’s (BNEF) latest study shows increasing competitiveness in renewables and batteries, with Australia leading demand for renewables-plus-storage and UK topping demand for battery deployments for flexibility.
BNEF’s latest report on the levelised costs of electricity (LCOE) for all the leading generation technologies finds that fossil fuel power is being squeezed in all three roles it performs in the energy mix, which is the supply of ‘bulk generation’, the supply of ‘dispatchable generation’, and the provision of ‘flexibility’.
LCOE takes in all costs for projects, including financing, development, construction and operations and maintenance.
In bulk generation, the threat comes from wind and solar PV, both of which have reduced their LCOEs further in the last year.
In dispatchable power – the ability to respond to grid requests to ramp electricity generation up or down at any time of day – the challenge to new coal and gas is coming from the pairing of battery storage with wind and solar capacity.
Just a small amount of battery capacity, over 1-2 hours, can be enough to smooth the variable characteristics of wind and solar PV, shifting forward the time of supply, where necessary.
Elena Giannakopoulou, head of energy economics at BNEF, said: “Our team has looked closely at the impact of the 79% decrease seen in lithium ion battery costs since 2010 on the economics of this storage technology in different parts of the electricity system. The conclusions are chilling for the fossil fuel sector.
Gridchangeagent.com spoke to Giannakopoulou for further details in terms of those markets where it is now more competitive to deploy batteries over more conventional peaking plants, such as combined cycle gas turbine (CCGT) plants, for dispatchable generation, or for providing grids with flexibility.
BNEF defines flexibility as the ability to switch on and off in response to grid electricity shortfalls and surpluses over periods of hours for load shifting. Stand-alone batteries are increasingly cost-effective and are starting to compete on price with open-cycle gas plants, in particular.
In 2018, Australia is expected to be the biggest market for renewables-plus-battery installations for dispatchable generation. It will install 430MW of solar, all a combination of solar PV-plus-batteries, with storage component accounting for 130MW. This is in addition to Tesla’s 100MW battery plant. Around 100MW of the 430MW will be installed in South Australia.
For flexibility, the UK is showing biggest demand for battery storage. The UK is expected to install 260MW of standalone utility-scale battery capacity in 2018.
In a few markets, including Japan, battery storage for flexibility is now cheaper than pumped hydro. China is on the same trajectory, where batteries are close to competing with pumped hydro, even large-scale plants up to a gigawatt in size.
While Germany is another market where batteries are more competitive than CCGT, and closing in on reciprocating gas engine powered thermal generation plants, the market is over-supplied, with north-south transmission constraints preventing wind energy from the north reaching industrial loads in the south.
BNEF forecasts 20MW of battery capacity to be installed in 2018, though a further 60MW is under consideration and if these projects secure financing over the coming months, some of that capacity could also be built this year.
Eroding the business case for new coal and gas
Despite falling costs of solar, wind and battery technologies coal and gas power stations are not going to be displaced entirely.
“Some existing coal and gas power stations, with sunk capital costs, will continue to have a role for many years, doing a combination of bulk generation and balancing, as wind and solar penetration increase,” says Giannakopoulou.
Several factors have converged that have led to a situation where the economics of building power plants based on batteries, either standalone, or coupled with renewables, is putting the brakes on new coal- and gas-fired power station investments.
In general coal and CCGT plants are used to provide bulk generation. Traditionally they have run at high capacity factors – or utilisation rates – of between 70-85%.
Weak electricity demand growth, within developed economies, along with rising solar and wind penetration has lessened the need for large, new coal- and gas-fired generators.
“Even in emerging economies, like India and China, a combination of over-capacity and weaker than expected demand growth, plus problems with fuel availability, keep many new plants underutilised. As a result, capacity factors for coal and gas plants are falling, down to around 60% for coal and as low as 20% for combined-cycle gas (CCGT) plants in some major markets,” says Giannakopoulou.
BNEF analysis expects utilisation of coal and CCGT plants to continue to be weak across the world as efficiency improvements place downward pressure on new electricity demand and solar and wind continue to be deployed.
Due to reductions in battery costs, the combination of solar and wind with batteries, albeit small capacities, is competitive with new coal and gas plants.
Giannakopoulou says: “While these projects cannot displace fossil fuel plants entirely, they are able to eat into their run-hours, especially the high value ones during peak hours, and negatively affect their economics.
“This raises important questions about price formation and the market design needed to attract investment in new dispatchable capacity and to support existing facilities, many of which will continue to be needed for some time to ensure security of supply.”
BNEF has been analysing the numbers on levelised costs of electricity for the different technologies since 2009, based on its database of project financings and work by its analyst teams on the cost dynamics in different sectors.
In that period, the global benchmark LCOE for solar PV without tracking has tumbled by 77%, and that for onshore wind by 38%. LCOEs for older established sources, such as coal, gas, nuclear and large hydro, have seen only very modest reductions, at best, in that time – and in some countries, they have actually increased.
BNEF’s lithium-ion battery price index shows a fall from $1000/kWh (€830/kWh) in 2010 to $209 per kWh in 2017.