Renewable energy’s growing role in the cost of electricity

February 27, 2014
 

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The average price of electricity in the U.S. is roughly 9.6 cents per kilowatt. Although only 13 percent of electricity was generated from renewable sources in 2013, according to the U.S. Energy Information Administration, the cost of producing electricity from renewable resources has drastically fallen. In fact, the cost of producing renewable power now closely competes with the cost of producing energy from fossil fuels. In 2014 and beyond, we will continue to see greater penetration of renewables in energy markets worldwide as the cost of renewable energy tech falls and the costs of fossil fuel infrastructure explodes.
Renewable boom
The cost of renewable energy is dropping – fast. Utility-scale energy projects are now less than half what they cost in 2010. Solar panels today are around $.64/watt, according to the Solar Energy Industries Association (SEIA). Compare this to only a couple years ago at $1/watt, let alone 35 years ago when they were more than $100/watt. Cost reductions are in part due to advancements in materials science (such as improved silicon production) but also due to mass production and the benefits of scaling. Consider the wind market, where companies such as Vestas have announced 8MW behemoth of an off-shore wind turbine that just began operation. In solar, you can point to the large growth of both utility-scale solar in addition to distributed generation in markets such as California, which installed more rooftop solar in 2013 than in the previous 30 years combined.
Carbon bummer
While renewable firms like First Solar, SunPower and Solar City are riding the new energy wave high, traditional energy firms in fossil fuels are hitting hard times. The main problem is huge expenditures on risky projects, with new regulations on dirty coal-powered generation also cutting into profits. One of the biggest challenges facing fossil fuel companies is the diminishing supply of carbon-based energy sources that are supported by U.S. law – mostly natural gas and oil. Because of this, the costs associated with finding the remaining fuels are taking oil companies to unexplored regions at the ends of the Earth. The low-hanging fruit is no-more. For example, Chevron, Exxon Mobile and Shell combined spent more than $120 billion in 2013; this was a 51 percent increase for Exxon and a 50 percent increase for Shell over 2012 levels, and double what Chevron spent over 2010 levels.
What it means
Renewable energy is a safe bet to keep growing in 2014. While some investors might be willing to bet on risky projects like the 45 percent over budget, $54 billion Gorgon natural gas venture, others would probably do better to look at the steadier numbers that are associated with renewable energy right now.


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