Despite protestations, multinationals don't yet understand the pace of energy technology

(This post was republished on The Ecologist site on January 23rd 2015)

The World Economic Forum (WEF) report on electricity generation makes depressing reading. Perhaps the pessimism about new technologies is predictable given that Davos represents large companies, not the innovative companies at frontier of energy transformation. Even so, to say that renewable power sources, excluding hydro, are projected to generate less than a quarter of OECD electricity by 2040 is a strikingly conservative. (The percentage is probably about 8% today).

Part of their pessimism seems to derive from a very outdated view of the economics of solar power. Take a look at the chart below. It shows WEF’s estimates for the costs of electricity generation now and in the future. The line at the top, starting off the scale, is solar PV. A megawatt hour is said to cost well over $200 in 2016 (about £130). Even by 2030 it’ll be over $110.

From the 2015 WEF report

From the 2015 WEF report

I think the people in Davos may have been imbibing too much of the local homebrew. Today, in overcast Britain, groups of installers are racing to put panels on the ground as fast as they can across the southern counties to ensure that they get the current subsidy rates. The price they get for a medium-sized commercial field? A subsidy of about $100 a megawatt hour (6.38 pence per kilowatt hour) plus the wholesale price of electricity. Let’s call that $70 a megawatt hour in addition. So even in one of the least attractive parts of the world, PV is already cheaper than WEF says, and by a large margin.

More tellingly, one of the latest auctions for installing PV, in Dubai in November last year, produced a figure of about $65 a megawatt hour. That is, an installation firm promised to install a large PV farm if it was paid less than a third of the price that WEF says is the underlying cost of solar in 2016. Prices being paid today are below the costs of PV that Davos assumes in 2040. 

Open a newspaper in most parts of the world today, and you’ll see optimistic references to the prospect of ‘grid parity’ for the best suited renewable in the local market, whether it is biomass, onshore wind, storage or PV. A business-oriented organisation like WEF should spend more time in the outside world, sensing the excitement about the rates of progress of low-carbon technologies rather than unquestioningly repeating the five year old wisdom of its leading sponsors.

Perhaps most surprisingly, WEF’s cost figures are approximately 50% higher than those produced by the International Energy Agency, long a sceptic about the progress of PV. And its figures for onshore wind are equally wrong. By now, I would have thought that at least parts of big business would have recognised the inevitability of the transition to renewables (with storage) and begun to look at how it could profitably participate.


Addendum: a couple of quibbles about the WEF report

None of the projections, estimates or calculations in the report are given a source. We cannot check their accuracy or even the provenance of their figures. I’m sure that the writers of the document have tried to use reasonable data. But the report is stacked full of statements made without any support or justification, many of which look highly contentious. We are expected to believe, for example, that ‘wholesale electricity prices are expected to continue to rise by 57% in the EU’ between now and 2040 at the same as retail prices are expected to stay the same. It doesn’t need an economist to say that such a combination is impossible.  

My confidence in the report’s recommendations was further shaken by WEF’s assertion that the EU had wasted $100bn by siting wind and PV in the wrong countries. ‘It is obvious to most European citizens that southern Europe has the lion’s share of the solar irradiation while northern Europe has the wind’, the report writes, before concluding that Germany has installed too much PV and Spain too much wind.

2013 estimates from the IEA suggest that the average productivity of a Spanish turbine was 26.9% of its maximum capacity, but only 18.5% in Germany. Spain’s wind turbines are almost 50% more productive than Germany’s. In fact Spain managed slightly more than the worldwide average and was only just below the UK or Denmark in average output.

Actually, it isn’t that ‘northern Europe has the wind’ but rather that westerly coasts have high wind speeds, making Spain and Portugal’s Atlantic turbines better than almost any inshore areas in northern Europe. There’s a second reason why Spain should have wind turbines: wind speeds are relatively poorly correlated with the winds in northern Europe. For a more secure European supply, turbines in Spain have a high value, particularly when interconnection with France is improved.

 And in the case of Germany, which does have much lower output from PV than Spain, the argument that it should have left the solar revolution to its southern neighbours is a remarkably ahistorical conclusion. Without Germany’s very costly support of PV a decade ago we would not currently be looking at grid parity for solar across much of the world.