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OPINION | Solar power is the new king, and that crown is going to be very difficult to knock off

External factors tilt the playing field in favour of renewable sources of energy, which has important implications for the future competitiveness of the oil and gas sector.

In the case of fossil resources, competition comes with a built-in disadvantage

According to the International Energy Agency, solar power has seen cost reductions of 80 per cent since 2010. For wind power, costs have dropped by 40 per cent over the same period. (CBC News)

This column is an opinion from Sara Hastings-Simon, a senior researcher at the Payne Institute for Public Policy at the Colorado School of Mines, and a research fellow at the School of Public Policy at the University of Calgary.

This month, the International Energy Agency crowned solar power the "new king" of global electricity markets.

The IEA's World Energy Outlook stated that solar photovoltaic (PV) is now the cheapest source of electricity in history, having achieved an incredible 99 per cent reduction in module costs since 1980.

If solar power is king, wind is queen, with both seeing significant growth through 2030 across the range of scenarios.

This news prompts a couple of questions.

The first is, obviously, how did we get here, seemingly so quickly?

The second is more specific to the Alberta context, where the news from the IEA was interpreted by some as an engineering challenge for the oil and gas sector: What does the future engineering race look like when one side faces a built-in disadvantage?

In the case of fossil resources, engineering innovations are in a race against declining resource quality and reserve depletion. Advancements enable production of a higher percentage of reserves or access to new resources without increasing costs.

In contrast, the wind and solar resources are non-depleting, so improvements in technologies translate directly to the bottom line.

These external factors make the playing field inherently uneven, which has important implications for future competitiveness between resource types that are often overlooked.

Why it got cheaper

The cost reductions are a multidecadal story, but the trend continues with cost reductions of 80 per cent since 2010 for solar and 40 per cent for wind over the same period. 

Rather than a single big breakthrough, solar cost reductions come from improvements across a number of different mechanisms.

Research and development increases the efficiency of the cells and reduces material costs. Learning by doing leads to increased yields. And economies of scale play a part as factory sizes increase.

Similarly, wind power has seen the cost of installed capacity drop as the size of individual turbines grow. Increasing capacity factors, thanks to technological improvements such as taller towers and larger turbines, mean more production from the same size wind farm.

A wind project built today will generate 65 per cent more electricity than a similar-size one from 1998-2001. 

Financing costs are also an important part of the story, with the IEA updating the cost of capital on the basis of individual resource types rather than assuming a single capital cost number for all. The result is that solar electricity is 20-50 per cent cheaper today compared with the estimates in IEA's report only last year. 

A wind project built today will generate 65 per cent more electricity than a similar-size one from 1998-2001. According to Sara Hastings-Simon, renewable sources of energy play by an easier set of rules. (Dave Rae/CBC)

Comparing the engineering challenge

Technological advancements continue across all types of energy, but the renewable nature of the resource means that wind and solar are playing by an easier set of rules. As the resource is not depleted over time, improvements in technologies translate directly to the bottom line as savings or increased production for the same cost.

In some cases, technological improvements can enable access to even better resources. The higher wind speeds that taller turbines reach yield significantly more power because wind power is proportional to the cube of wind speed.

The repowering of a wind farm in southern Alberta illustrates this phenomenon.

Commissioned in 1993, the 18-megawatt wind farm had 57 wind turbines when it was decommissioned in 2016. While the turbines had reached the end of their lifespan, the wind resource itself remains valuable and there are plans to erect five new turbines in their place, representing the same 18-MW capacity with a significantly smaller footprint and higher capacity factor, meaning more power generation over the year.

In contrast, oil and gas innovation is a fundamentally more challenging battle between technological progress and resource decline. New technologies can access new resources such as shale gas or deep water oil, but have to fight against the cost-increasing effects of the depletion of existing resources.

Engineering advances in horizontal drilling and hydraulic fracturing have opened up previously inaccessible shale gas and tight oil reserves, but at production prices that are above the depleted conventional resources they replace.

Similarly, technological advances in Enhanced Oil Recovery (EOR) allow operators to produce more of the resource that would otherwise be left in the ground, reversing the decline of production and lengthening the well lifespan. But lifecycle costs for EOR don't provide cost savings compared with other production opportunities, and simply stretch the time before investments must be made to properly abandon the well and reclaim the site.

Looking to the future

Predictions about the future are hard, and the IEA is careful to state that they aren't putting out forecasts but simply a set of scenarios for how the future could unfold. But these scenarios often enter into the discussion of Alberta's future as if they were forecasts, so it's worth considering how this year's outlook has changed and what else might be missing.

Historically, population and economic growth have been the primary drivers of change in energy demand, but additional factors, such as technology, are becoming increasingly important. This can be seen in the dramatic increase in future solar and wind capacity between the 2019 and 2020 scenarios.

Future budgets and plans in Alberta should be evaluated under a wide range of scenarios to ensure we are prepared for an uncertain future.


This column is an opinion. For more information about our commentary section, please read our FAQ.

ABOUT THE AUTHOR

Sara Hastings-Simon is a senior researcher at the Payne Institute for Public Policy at the Colorado School of Mines. She is also a research fellow at the School of Public Policy at the University of Calgary and the co-host of the Energy vs. Climate webinar and podcast series. Her research is focused on low carbon energy transitions at the intersection of policy, business and technology.

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