While many believe we’ll need to subsidise our transition to a low-carbon economy for many years to come, evidence is beginning to emerge to challenge this view.
According to the latest report from the International Renewable Energy Agency (IRENA), electricity from renewables will soon be consistently cheaper than from most fossil fuels.
“By 2020, all the renewable power generation technologies that are now in commercial use are expected to fall within the fossil fuel-fired cost range, with most at the lower end or undercutting fossil fuels,” predicts IRENA’s Renewable Generation Costs in 2017 report.
Offshore wind at an all-time low
While renewable energy is often cheaper in other countries, we’re already seeing costs reduce in the UK.
For example, the most recent Contracts for Difference (CfD) auction secured some surprisingly low prices for offshore wind energy, with a strike price as little as £57.50/MWh for delivery in 2022/23. This compares to £119 and £114/MWh in the previous CfD auction. (see our blog for more).
It means that new offshore wind is now cheaper than new nuclear. For example, the Hinkley Point nuclear plant, which was commissioned by the government last year, was granted a strike price of £92.50/MWh (indexed linked to 2012 prices) for when it starts generating (2027 at the earliest).
Filling the need for 24/7 power
But even if it ends up costing the same or more, conventional power generation is still viewed as necessary for the foreseeable future, to ensure continuous supply alongside ‘intermittent’ renewables.
However, this belief may soon be challenged too, if battery storage can reach the scale required to balance any supply gap.
Certainly, the latest research from the Global Power & Utilities team at EY suggests that by 2022, advances in battery storage will mean it’s likely to cost the same for consumers to self-generate and store power as it does to buy from an energy provider.
A key enabler of this will be the creation of more diversified and responsive local energy grids, which we covered in our recent blog charting the transition from Distribution Network Operators (DNOs) to Distribution System Operators (DSOs).
New opportunities for business
For businesses, there are obviously emerging opportunities that could reduce energy costs and increase both security of supply and sustainability.
Already, on-site generation and demand-side response initiatives can generate revenues to offset rising energy costs.
To make sure your business is planning for a lower-cost energy future, do get in touch with a member of our Energy HQ team. Either speak to your Client Lead (for existing customers) or contact us via nBS@npower.com.