The Blog - Wind energy market analysis

Posted 16/02/2018

Richard Heap

    

Wind vs solar: which will reach grid parity first?

Lloyd’s Register has published its latest Technology Radar report, in which it asked nearly 800 industry experts share their views on when wind and solar energy should reach parity on price with conventional fossil fuels. Which will be first?

Wind vs solar

Floyd Mayweather versus Conor McGregor. The outspoken pair went toe-to-toe in Las Vegas in August and are now talking about a potential re-match. We’ll see.

But even a re-run of their so-called ‘Money Fight’ can’t draw our attention from the fight we regard as more compelling.

Will wind or solar power globally achieve parity with fossil fuels first? And when will renewables pass fossil fuels in the energy mix?

This month, technical services firm Lloyd’s Register published the 2018 edition of its annual Technology Radar report, which is called ‘Towards The Tipping Point’ and focuses on renewables. It follows the 2017 edition, which said that renewables had almost reached cost parity with fossil fuels. This year’s looks at when they will.

We should start by saying that we see plenty of firms that have interests in both wind and solar. From utilities to institutional investors, wind and solar can both play crucial roles in their strategies; and even the world’s largest wind turbine maker, Vestas, has been looking at how it can support development of projects that mix wind with solar.

The grid parity arms race can be beneficial for those with an interest in either sector – much like the ‘Money Fight’ could only have one winner, but was beneficial for the bank balance of both Mayweather and McGregor.

But there’s still a sibling rivalry between wind and solar, so which will hit parity first?

First, we should look at exactly what the Lloyd’s Register findings show.

It polled 792 executives working in renewables globally in December:

  • 58% of them represent power and utility companies that own renewables assets;
  • 21% work for energy companies that own renewables assets but aren’t utilities;
  • and 21% work for oil and gas companies.

There is a decent mix in the backgrounds of respondents.

There is also a mix geographically:

  • 28% of respondents are based in the Americas;
  • 24% in Europe;
  • 23% in Asia-Pacific;
  • and the rest in the Middle East and Africa.

Company revenue split:

  • 29% work for companies with annual revenue of over $500m;
  • 46% for firms with annual revenue from $51m to $500m;
  • and 25% for businesses with annual revenue of $50m or less.

This is a good mix, and respondents included Orsted’s head of wind Samuel Leupold; the University of Delaware’s Stephanie McClellan, director of the special initiative on offshore wind; and BP’s group technology head David Eyton.

Reaching the tipping point

The report begins by discussing the market in the last couple of years, where it said wind and solar had both achieved cost reductions that proved that they could reach parity on price with fossil fuels. Some market analysts have already said that we’ve reached that ‘tipping point’.

Indeed, two-thirds of new global power capacity in 2016 came from renewables, with wind and solar leading the way. This is increasingly driven by projects that require low or no government subsidies, and is a cause for celebration in both sectors. But those leading projects do not necessarily reflect the industry as a whole.

So which will be first to widespread parity? Wind or solar?

Well, the respondents said solar would reach grid parity in leading countries before wind would – but not by much.

They expected solar PV and concentrated solar power to reach grid parity in China in 2023, and then solar PV would reach parity in the US in 2024 and Germany in 2025; while CSP would reach parity in Spain and the United Arab Emirates in 2024. In this study, parity is defined as without the use of any type of government subsidy.

By contrast, they said onshore wind would reach parity first in the Germany and the US, in 2024, followed by Denmark in 2028. And they said offshore wind would hit parity in Germany and the UK in 2024, followed by the US and Denmark in 2025. So, in terms of the leading markets, there isn’t much to choose between wind and solar.

But these are leading markets. The researchers note that a decisive tilt in the energy market towards renewables would take longer, with renewables set to surpass fossil fuels in the energy mix of nations in Europe and North America by 2025; the Middle East by 2028; and in Asia-Pacific and Africa after 2033. And they said that grid parity would not be enough to tip the balance decisively in favour of wind and solar – only 10% said grid parity would be enough to foster sustained interest in renewables.

The other barriers to the fast rollout of wind and solar include storage, with 37% of respondents saying that slow development of storage would hinder renewables.

The other hurdles were insufficient government policies (32%) or investment (28%); insufficient investment by energy companies (27%); and issues with transmission (25%). For example, Leupold argued that storage was not ready to cope with utility-scale offshore wind farms: “The largest battery I know of could store the production of our Hornsea wind farm in the UK for no more than two minutes.”

Investing in technology

Finally, the report looked at the extent to which respondents thought that investing in technology would be the most important factor in wind and solar reaching the tipping point – and the finding was that technological advances would be key.

Seventy-one percent of people said that technology advances would do more to support the growth of renewables than policy or regulatory changes over the next five years. In offshore wind, for example, this means longer blades; larger generators; improvements in materials; and most sophisticated control systems.

Floating platforms could also become cost-competitive with fixed foundations in the mid-2020s, which McClellan said could “radically improve the economics of floating offshore wind” and take offshore projects to, for example, waters off California.

However, they also highlighted a very important role for technology. This progress will also rely on improved software and control systems, with 56% responding that software evolution would play a more important role in driving renewables forward than hardware changes. The biggest challenges here were improving the quality of the data collected. Only 16% said that advances in hardware would be most vital.

That is an intriguing finding in the wind sector, where turbine manufacturers are still in a race to make machines bigger and better. As Jens Tommerup, chief executive of MHI Vestas told us in our Top 100 Power People report in November, these sorts of software improvements could play a vital role in boosting turbines’ output:

“We can make bigger turbines. The question is whether there is a business case,” he said.

What would encourage firms to make those investments in tech innovation, both in terms of hardware and software?

Thirty-eight percent said that reducing environmental impacts of their projects would be an important factor to unlock this investment, and 37% said reducing costs would be key. Following that, 27% said they would make these investments to improve the operational efficiency of their assets; 27% to safety; and 25% to give companies a competitive advantage – which, I must admit, I’m surprised didn’t rank higher.

And they said the main barriers to deploying low-carbon technology would be high cost (54%), political indecision (36%), little standardisation (33%), and the absence of needed skills (32%). However, while politicians still exert influence on the growth of renewables, this report argues that – now more than ever – the fate of wind and solar are in the hands of the firms who are investing in projects and technology.

This should give hope to anyone working in wind and solar. Just keep going.

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